Asset classes over centuries

Together with colleagues, Moritz Schularick, Professor of Economics and Economic History at the University of Bonn, has compared the inflation-adjusted returns on money market investments, government bonds, equity and real estate in 16 industries since the 19th century. With the data set, which ended at the end of 2015, the researchers show, on the one hand, that riskier investments such as real estate and equity achieved higher returns. However, supposedly secure investments were also subject to significant fluctuations, which occasionally led to negative real yields.

In the long term, real estate investments have generated real returns of about 8 percent on average over the past 150 years. Shares achieved a real return of 7 percent. In contrast to the theory, the returns of real estate fluctuated less than that of equities.

With more risky assets such as real estate and equity, investors should be able to generate higher returns than with safe investments such as money market instruments and government bonds. The study confirms the higher returns, but also notes that the real returns of risky asset classes have fluctuated less than those of the supposedly safe assets.

The long-term average return of government bonds in the industrialised nations is 2.5 percent, for money market investments it is one percent. Particularly during the two world wars, but also in the high inflation period of the seventies and early eighties, both asset classes exhibited negative returns. Shortly afterwards, however, in the course of the 1980s, the real yields reached a high and fell since then.