(News Bulletin 247) – Deutsche Bank, based on Bloomberg data, has compiled the highest average annual returns since 1974 on the main asset classes. A simple conclusion: it is better to invest in the very long term in stocks than in raw materials.

Quite well-known among investors, particularly for his morning market updates often filled with personal anecdotes (such as his victory in a golf competition), Jim Reid, a strategist at Deutsche Bank, was born in 1974. He recently passed the fifty-year mark.

Which led the market expert to ask himself a simple question: over the past 50 years, which asset classes in the largest economies have grown the most and produced the best returns?

“I would be depressed to look at what my portfolio might have looked like if my parents had invested in various assets for me in June 1974. And also what we can all learn by looking at long-term returns,” he explained in a commentary sent to investors two weeks ago.

Using data from Bloomberg and his bank, the market expert has established a ranking, which we reproduce in the infographic below. This data compiles the average annual return since 1974 for each asset class. Technical point: these returns are expressed in real data, i.e. corrected for inflation, and are denominated in local currencies (and not harmonized in a single currency, such as the dollar).

>> Access our exclusive graphic analyses, and enter the confidence of the Trading Portfolio

Stocks reign almost supreme

Some fairly simple lessons emerge from these data. First, the theoretical gains calculated by Jim Reid argue for very long-term investment. For example, investing $10,000 in 1974 in the American market would today allow one to have a portfolio valued at… $2.4 million, or $375,000 excluding the impact of inflation.

Next, this infographic focuses mainly on stocks because, in the very long term, their performance largely outclasses other assets. In the “top 28” established by Jim Reid, the first eight places are occupied by stock markets. Incidentally, we will note the absence of mainland Chinese stocks in the infographic. This is normal: Jim Reid looked at average returns over 50 years. However, the Shanghai Stock Exchange was closed from 1950 to 1990, according to Goldman Sachs, following the country’s communist revolution. The Shenzhen Stock Exchange was only founded in 1990.

This aside, the highest average annual returns over the last 50 years have been achieved on… Indian stocks, with a rate of 8.9% in real terms. This is followed by stocks in the United States (7.5%), Hong Kong (7.2%), Australia (7.1%), South Korea (7%), the United Kingdom (7%) and then France (6.9%).

The first non-equity asset class to appear in the ranking is Korean sovereign bonds (6.4%), at ninth place. Commodities are also lagging behind. Gold is at 26th place with a real return of just 1.7% while oil and copper show slightly negative real returns (-0.1% and -0.3% respectively).

“Throughout history, stocks have found a way to prevail almost everywhere, but in the developed world, the United States has tended to be the winner,” Reid points out.

“Oil is virtually flat in real terms over 50 years, which longer-term history confirms is the long-term trend. It rarely competes with financial assets,” he adds.

And “while we feel like we’re living in an era of unprecedented wealth creation in the housing sector, long-term returns are nowhere near those of stocks and are even lower than those of most bond markets, provided you live in your home and don’t rent it out,” the strategist explains.

Jim Reid has, in fact, retained in his infographic the American and British real estate markets which only display average real yields of “only” 1.5% and 2% respectively.

“Bottom line: if you have a young parent today and want to be remembered fondly in 2074, put some money aside for them now (probably in stocks) and don’t listen to the strategists who try to predict the market,” Jim Reid concludes with humor.