Global investment portfolios 2016 update

Creditsuisse2016The Credit Suisse Global Investment Yearbook 2016 is now available for download from Publications – Credit Suisse. The yearbooks are an extension of the research of Elroy Dimson, Paul Marsh, and Mike Staunton, first published in the 2002 edition of “Triumph of the Optimists”. As always the yearbook is an interesting read. What lessons can we derive from the updated long term returns from 23 national markets?

The table below provides real returns on equities, bonds, and bills for all nations in the database that have had continuous markets over the 1900-2015 period, with the exception of China and Russia, both added to the database in 2016. China’s data covers the 1993-2015 period; Russia dates from 1995-2015.

Country Equities Bonds Bills
Australia 6.7% 1.7% 0.7%
Austria 0.7% -3.8% -8.0%
Belgium 2.8% 0.4% -0.3%
Canada 5.6% 2.3% 1.5%
China -3.3% 1.9% 0.6%
Denmark 5.5% 3.2% 2.1%
Finland 5.4% 0.2% -0.4%
France 3.2% 0.2% -2.7%
Germany 3.3% -1.4% -2.4%
Ireland 4.4% 1.5% 0.7%
Italy 2.0% -1.1% -3.5%
Japan 4.2% -0.9% -1.9%
Netherlands 5.0% 1.7% 0.6%
New Zealand 6.2% 2.1% 1.7%
Norway 4.2% 1.9% 1.1%
Portugal 3.5% 0.8% -1.1%
Russia 3.8% 4.2% -1.9%
South Africa 7.3% 1.8% 1.0%
Spain 3.6% 1.8% 0.3%
Sweden 5.9% 2.7% 1.9%
Switzerland 4.5% 2.4% 0.8%
United Kingdom 5.4% 1.7% 1.0%
United States 6.4% 2.0% 0.8%
World 5.0% 1.8% 0.8%
World ex US 4.3% 1.5% 0.8%

Source: Credit Suisse Global Investment Returns Yearbook 2016

Returns are also broken down over segregated time periods. An interim 1966-2015 span of data reflects the experience of investors whose investment careers spanned the last half-century. Twenty-first century returns are also provided.

Global investment real returns

Period Equities Bonds Bills
1900-2015 5.0% 1.8% 0.8%
1966-2015 5.0% 4.2% 0.8%
2000-2015 1.6% 4.9% -0.4%

Source: Credit Suisse Global Investment Returns Yearbook 2016

What can we take away from these long term return histories

  • Historically, the markets have offered investors compensation for bearing risk, as equities have realized premium returns over bonds; and bonds have offered premium returns over bills.
    • The world risk premium for stocks over bonds was 3.20%
    • The world risk premium for bonds over bills was 1.00%
    • The world risk premium for stocks over bills was 4.20%
  • Although some nations have realized better historical performance than others, and we can expect differences in future returns, we can have no assurance of exactly which national markets will be relative winners or losers going forward.
  • Investing globally can diversify the risk that one’s home market will provide poor future returns.
  • With historical real returns for globally diversified stock/bond portfolios ranging between 3% and 4%, prudence suggests that investors should pay special attention to limiting investment costs and tax expense.

The best way to garner these returns is to index a globally diversified portfolio. Today in the US we can invest globally using index funds from a wide list of index fund providers.

Vanguard makes this possible, using its four-fund balanced portfolios (see Vanguard four fund portfolio – Bogleheads) or by using separate asset class index funds for US stocks, US bonds, international stocks and international bonds.

Three Vanguard balanced portfolios

Many other investment companies now offer index funds that make creating a low cost globally diversified portfolio possible (for an overview, see Three-fund portfolio – Bogleheads) or a link from the selections in the table below.

More selections are available.

Investment Company Wiki link
Blackrock iShares Blackrock iShares
Charles Schwab Charles Schwab
Dreyfus Dreyfus
Fidelity Fidelity
Northern Funds Northern Funds
TRowe Price T. Rowe Price
Thrift Savings Plan Thrift Savings Plan
TIAA-CREF TIAA-CREF
About

Barry Barnitz, administrator of both the Bogleheads® wiki and of Financial Page, a Bogleheads® blog

Tagged with:
Posted in Market statistics
February 2016
M T W T F S S
« Jan   Mar »
1234567
891011121314
15161718192021
22232425262728
29  
Categories
Archives
Follow Financial Page on WordPress.com
%d bloggers like this: