Assets Historical Returns from 1802

[lillo9546]

Hi guys!
is this chart legit? https://imgur.com/Lfz641C
Would you like to explain it?

[jacob]

Insofar the source is Siegel, probably yes, the numbers are legit.

As for general "laws of finance", it could be argued that equity should perform twice as well as bonds and bills. Bonds and bills should perform the same given how corporations and governments hold equal power during this epoch. Gold should be flat since it follows industrial capacity. And fiat should try to keep up. This makes sense.

Explanation: This fits with the Kondratieff waves of steam, steel, chemistry, oil, and internet. Does your faith in continued technological progress remain? Or are the low-hanging fruits of that pretty much gone in large parts of the world by now? What's the total factor productivity growth outlook in developed countries vis-a-vis developing countries at this point?

[xmj]

There's the following paper: The Rate of Return on Everything, 1870–2015

Author(s): Oscar Jorda, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor

This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.

[WFJ]

Yes, but a MAJOR caveat needs to be acknowledged "assuming your paper claim on stocks were never lost stolen or seized" which is quite common over a 200 year time period. There were 11 bank failure crisis in the US after 1800 that likely wiped out the stock holdings of most individuals. In addition to civil war, WWII and bizarro Russian asset seizures in the US. Credit Suisse (run into the ground by past incompetent diverse CEO) is the latest example of holding assets in failed firm can get very risky very quickly.

https://en.m.wikipedia.org/wiki/List_of_banking_crises

The ease at which the US government trounced private property rights in the name of a cold are a bad harbinger for financial asset seizures in the future.

I remember seeing older people still hold bonds in safety deposit boxes and physically clipping the bond coupons as a hedge against a bank failure. There were time and financial costs to do this, but if the bank failed, the customer could still obtain assets held in boxes, not as easy if held electronically.

[fiby41]

According to data from the National Council of Real Estate Investment Fiduciaries, US farmland has produced an average annual return of 11.5% over the past two decades, significantly outperforming traditional asset classes like stocks and bonds.
Moreover, a study by Nuveen found that farmland investments have a low correlation to these asset classes, making them an attractive option for portfolio diversification.

[jacob]

If you want to go further back, see https://www.amazon.com/History-Interest ... 0471732834 ... which I think every student of finance should read at some point in their life. This book is also the reason why the ERE book talks about 3%, not 4%.

[Lucky C]

6.7% Real for US stocks only from soon after the American Revolution until through QE and and everything in between. In other words, a very special case. The greatest empire in history when the planet had vast stores of resources for the taking via cheap labor.

To get close to 6.7% real in the 21st century, I would expect you would need to anticipate the potential downfall of the US as the dominant empire and instead invest in the next empire, and hope they can continue to strip natural resources from around the world for cheap (or buy cheap goods/resources from those who do). In the US and many other countries you'll be facing the headwinds of unsustainable debt, demographic challenges, the depletion of natural resources, etc.

This is also tracking stock indices passively. The average investor deviates from buy & hold and underperforms the market by several percentage points per year. Also the fact that passive is now more popular than active can reduce future returns, where active managers now theoretically have more opportunities to take returns from passive investors who aren't even trying to compete for better returns.

There are probably some countries' markets that will return > 6.7% real over the next couple decades, but I doubt the US stock market will.

[Humanofearth]

220 years ago, there were less resources available for our use than there are now. Human ingenuity is what makes rock into metals, old dinosaurs into energy. Look into the deep earth, other planets, the star, the nuclei of atoms for far more energy than we find in fossilized carbon. Having more kids and consuming more resources allows us to more quickly develop the truly limited resource of collective human capacity.

For the next empire, several obvious choices in the internet, AI, and space. Not centralized as governments were though, the focal point of power is now switching to sovereign individuals who are the ones pushing us into orbit rather than the monopolies on violence we call government.

That said, the returns are lower if you use monetary dilution as inflation, negative this century but that’s not in the scope of the chart.

[jacob]

Also,

Note that these are all denominated in USD and so that metric becomes the point of reference and the water that the fish (think poker) swim [with]in.

Here are some exercises for the prospecting student who doesn't wanna go along with the herd wisdom:

1. For this graph, you see a break around 1933 and again 1971 suggesting a problem with the metric. How do these graphs look in EUR or some other currency?
2. Lin-log plotting is notorious for flattening curves as is picking scales such as the long run. How does the data look in lin-lin format on shorter time scales?
3. Based on your readings on how to leverage return using debt, how would you expect various asset classes to perform within the economic/financial paradigm? Is the rate of gold mining still the same as ever? Why does this graph not including other measures like price of "a good suit", "daily pay for unskilled labor", "rent in NYC suburb", "general life satisfaction"...
4. Based on your readings about resources, sinks, and population dynamics, how would you interpret these numbers?

[7Wannabe5]

1. Well, 1971 was obviously when Nixon unhooked the dollar from gold effectively making it an entirely different class of asset at that juncture. So, my first question would be how have other real assets been doing since 1971?



At the time of the Homestead Act of 1862, the U.S. government was giving 160 acres of land to anybody who pledged to farm it. So, using the same kind of math that is exhibited in such a long-term chart as offered in OP, one could clearly argue that the Homestead Act was by FAR the largest welfare scam in U.S. history! Every loser who couldn't feed his 6 kids on his rocky New England acreage was given the equivalent of a $500,000 handout!