Credit Suisse published this week the Global Investment Returns Report for 2023, the authoritative guide to long-term historical return data. The document, published by the Credit Suisse Research Institute in collaboration with the London School of Economics, covers All major asset categories in 35 countries.The report includes 123 years of cumulative data, since 1900, on the surveyed markets and global index data.
In the long term – the stocks at the top
The shares register the best performance in the long term, according to Credit Suisse. Over the past 123 years, global stocks have provided a real dollar return of 5% per year, compared to 1.7% in bonds and 0.4% in government bonds. Stocks have outperformed bonds, government bonds and inflation in all 35 countries. Since the year 1900, the performance of stocks in the world exceeded those of government bonds by 4.6%, and those of bonds by 3.3% per year.
Looking to the future, the authors estimate that the risk premium in stocks will be around 3.5%, slightly below the historical figure of 4.6%. With a 3.5% premium, equity investors can expect to double the value of their money relative to government bonds within 20 years.
Return to the inflation target? Not so fast
By the end of 2022, the average inflation rate in the countries included in the annual summary was 8.0%, 19 times higher than at the end of 2020. There were signs that inflation had peaked at the end of 2022. However, according to the annual summary, historically when inflation exceeds 8%, it may take several years So that you return to the target value, according to Credit Suisse. Over the past 123 years inflation has had a negative effect on both bonds and stocks. Stocks are not a hedge against inflation, despite claims to the contrary on this subject.
The correlation between stocks and bonds was mostly negative over the course of two decades, until the end of 2021, causing stocks and bonds to hedge each other. However, investors were warned in the previous annual report, for 2022, that this is not a typical long-term phenomenon.
After four decades in which bonds produced similar returns to stocks, the law of risk and return came true in 2022. In this year, bonds recorded their worst year ever in the US, UK, Switzerland and markets in the rest of the developed countries. According to the report, historically, Returns on stocks and bonds have been much lower during periods of rising interest rates than during periods of falling interest rates.
The fear – stagflation
Investors are worried about the possibility of stagflation – a combination of low economic growth and high inflation. New historical research in the annual report shows that these concerns are justified. During stagflation, real returns on stocks and bonds averaged -4.7% (minus) and -9.0% (minus). In the opposite case of stable growth, the average real returns stood On 15.1%+ on shares and 8.8%+ on bonds.