Salient to Investors:
Research by Elroy Dimson, Paul Marsh and Mike Staunton at the London Business School shows:
For many people, the long-term has to be very long-term to guarantee that they do not lose money – unfortunate timing can mean it can take several decades for markets to make up for a period of losses.
Going back to 1900 shows that there was a period as long as 17 years when investing in US shares showed zero real returns, even with dividends re-invested.
The 3 periods of negative real returns were 1905-20, 1906-21 and 1966-8.
For UK equities, the longest period was 23 years ending in 1921 after GDP contracted by a record 8.1 per cent and fell more than 20 per cent for the 1919-21 recession as a whole.
Investing in the Italian stock market in 1905 or 1906 could have taken as long as 74 years to breakeven after adjusting for inflation.
Taking into account investment charges makes it even harder to make a profit.
Over a lifetime or longer, equities have been the best investment.
£1 put into the British stock market in 1900, with dividends re-invested would now be worth £22,432 or £291 adjusted for inflation , while prices increased 77-fold – and far outstrips the returns from investing in bonds.
The vast majority of the gain on equities comes from reinvesting dividends. Without dividends reinvested, £1 invested in 1900 would now be worth just £1.80p after adjusting for inflation.
In the 1990s, the total return on bonds was just short of the return on equities, while in the 2000s the total real return on bonds was 2.4 per cent and real return on equities was zero.
In the 112 years since 1900, high-yielding shares with dividends re-invested rose 106,765-fold versus 4,255 for low-yielding shares
Between 1972 and 2001, the returns in countries whose currencies had been weak over the previous 5 years showed returns of 17 per cent a year versus half that investing in countries whose currencies were strong over the previous 5 years.
The best-performing house-price rises since 1900 were Australia with 2.03% per year and the UK with 1.33% per year. Norway was 0.93%, the Netherlands was 0.95%, and France was 1.18%. The United States with 0.09% per year was the worst.
House price indexes appear to have kept pace with inflation over the long-term.
The appetite for risk in 2011 hit its lowest level in 30 years.
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