Investors who aim to build wealth need to be aware of how various asset classes perform over the long run. That said, too many of them fail to recognize or factor in historical trends and/or diversification into their allocation.
The following five-asset class analysis outlines the performance history of stocks, bonds, gold, real estate, and cash from the beginning of the twentieth century. It allows us to put current circumstances into longer-term investment performance and risk.
Comparing the returns over history, an investor would be able to see which asset classes suit them best according to their goal and risk tolerance. From here, this data will really start to show the power of a diversified portfolio in mitigating volatility and maximizing return.
The 5 Major Asset Classes
1. Stocks
- Historically, stocks have been the best-performing asset class.
- The $100 investment in 1928 today would be worth $787,000.
- Average annual return: 9.9%.
- Stocks can provide high growth but also have heavy volatility.
2. Bonds
- Bonds are a safer investment than stocks and yield consistent returns.
- Bonds provided moderate growth at lesser risk over the last century.
- Average annual return: It ranges between 4% and 6%, approximately, with regard to the type of bond.
3. Gold
- It is seen that gold is a hedge against inflation and uncertainty in the economy.
- There is huge variation over decades, particularly underperforming during the 1980s and 1990s.
- Average annual return: 5%.
4. Real Estate
- Real estate is probably one of the best-known and most popular investments; its historic returns may surprise many.
- Average annual return: 4.3%.
- Real estate provides stability and income but does not have the explosive growth that stocks have.
5. Cash Money Market Instruments
- Cash investments, such as savings accounts or Treasury bills, on the other hand, are oriented toward capital preservation.
- Average annual return: Typically 1–2%, usually behind the rate of inflation.
Decade-by-Decade Performance
Performance by decade also shows significant variation in return:
- Stocks: The asset class generally does well over the long term but may have extended underperforming periods, like throughout the 1930s and 2000s.
- Gold: The only asset that has shown negative returns over two successive decades—the 1980s and 1990s.
- Real Estate: It provides regular, adjusted-for-inflation returns but seldom outperforms during bull markets.
This positioned well the importance of keeping a longer-term perspective, as even traditionally strong asset classes can underperform at times.
The Power of Time Horizons
Evidence from historical trends and data shows that the longer an investor can stay in the market, the better the likelihood of meeting the averages for the long-term:
- Three-Year Annualized Returns: Highly volatile and reflecting the market fluctuations.
- Ten-Year Annual Returns: Smoother and more predictable, which shows the benefit of holding investments longer.
Key Findings
The following table summarizes the performance of $100 invested in each asset class in 1928.
| Asset Class | Value in 2024 | Average Annual Return |
|---|---|---|
| Stocks | $787,000 | 9.9% |
| Gold | $10,000 | 5.0% |
| Bonds | Moderate Growth | ~4–6% |
| Real Estate | Moderate Growth | 4.3% |
| Cash | Low Growth | 1–2% |
Stocks have by far outperformed all other asset classes over the past century, while gold is the second-best performer, largely due to its role as a hedge.
Diversification is Important
While stocks have been known to return the highest, over-investment in one class of assets exposes the investor to risk unnecessarily.
A balanced portfolio consisting of equities, bonds, real estate, and gold will minimize volatility and return steadier income.
Conclusion
The historical returns of the five major asset classes prove that stocks are the best long-term investment, with unmatched growth potential. However, other asset classes, like gold, bonds, and real estate, are very important in portfolio stability and risk management.
Key Takeaways
- Stocks are the best-performing asset class, returning 9.9% annually.
- The moderate growth of gold and real estate comes with some unique advantages: hedging against inflation and income generation.
- Bonds and cash offer stability with lower returns.
It is also important that investors maintain diversified portfolios while adopting long-term, disciplined approaches to investment.