Pranesh Srinivasan

Data. Hacks. Opinions.


In this post, we look at long-term inflation adjust returns across six different asset classes - cash, residential housing, gold, industrial commodities, bonds, and stocks (equities). By long-term, we mean at least a century or more.

In doing so, we shall find that equity ownership in cash flow producing businesses via stocks outperform all other categories. All charts in this post deal with real returns - i.e, returns adjusted for inflation.

Purchasing Power of the Dollar (Cash)

Most people know that cash loses value over time in proportion to inflation. The loss in value compounds over time - even conservatively low inflation rates like 2% compound to over 80% loss of value in a century! How has reality been? Far worse! The following chart shows the purchasing power of a $100 bill between 1900-2010.

Purchasing Power of the US Dollar

Remember this chart is adjusted for real returns i.e, if you had tucked away $100 in 1900, you could only buy the equivalent of $3.48 (in 1900 money) at the turn of the century. In other words, the $100 bill lost just over 96% of it’s value!

Inflation Adjusted Housing Returns

Investment in real estate via residential housing (as opposed to REITs) provokes opinions like none other. It’s also a very unique investment in a number of ways:

  • For one, you are born short housing.
  • Gains (and losses) in real estate are often amplified due to the leverage that a mortgage provides.
  • Housing is far more illiquid than any of the other asset classes we consider.
  • Investing in housing has high closing and maintenance costs involved. I highly recommend reading gocurrycracker’s “How I made $102k in real estate”.
  • Diversification in housing is hard unless one is extremely wealthy.

The data shows that residential housing in the US has maintained its value over the 110 years as the following inflation adjusted chart shows. However, even assuming a generous 2010 value of 120, the compounded annual rate of return over the last century has been just over 0.1% annually!

Inflation Adjusted Housing Returns

These numbers are market averages. There have definitely been neighbourhoods and cities that have increased ten-fold in value over the last century. Market characteristics are very localized, and it is therefore very much possible to make shrewd excellent return investments with local expert knowledge. Before you get excited, a couple of fantastic resources I recommend in thinking about the costs involved are:

Real Gold prices per ounce over the last 7 centuries

Gold has long been perceived as an inflation hedge. The chart below shows the inflation adjusted price per ounce of gold (in £)1 over the last 7 centuries.

Real Gold prices over 7 century

The data does show that gold has held its value - albeit over long periods of time. If you bought some gold in the early 15th century, you would have had to wait over 4 centuries for it to regain value.

Gold’s biggest value add to any portfolio arguably stems from being a hedge against economic and global instability. It’s biggest issue is that it is not a cash producing asset. As always, Buffet says it best.

A study in industrial commodities - the real price of Silver

It is a well known thesis that industrial commodities tend to lose value over long periods of time due to two reasons:

  • Technology improves the throughput per unit of industrial commodities, i.e, less units of silver are required per use case over time.
  • The technology to mine industrial commodities improves with time.

The following chart shows the real price of silver from 1344-2004 - a negative real return of return!

Real prices of Silver from the 1300s

Equities and Bonds over the last 100 years

US equities and bonds have done astoundingly well over the last century. Adjusted for inflation, bonds have delivered a 1.6% per year, and equities have delivered a whooping 6.7% per year. An investment of $100 in US equities in 1900 would have grown to a sum equalling $71,000 in 1900 money2!

Cumulative Return - Stocks & Bonds

Of course, the US was one of the best performing equity markets in the 20th century! What do the returns look like in other countries - for example, those more significantly affected by the world wars?

Dimson, Marsh and Stanton have collected, cleaned and normalized real equity returns across the world as part of their ground breaking “Equity Risk Premia around the world“:

Real Equity Returns across the world

Every country in the world had positive real equity returns - even those with negative bond returns!

A note on real real returns

Thornburg asset management has released a wonderful paper titled “A study of real real returns” (pdf). The paper studies returns across various asset clases after inflation, expenses and taxes over the last 30 years. It’s no surprise that equities come out on top - not only are equities taxed favourably, they also have some of the lowest expense ratios around:

Real Equity Returns across the world


Equities, while volatile in the short term, have provided the highest real returns over sustained periods of time. Investment in equities is ownership in a business and is hence inherently risky. It is understandable that equity owners want to be compensated for their risk, and over time, they have been handsomely rewarded!

It is also easier than ever before to be invested in US and global equity markets. Vanguard provides some extremely low cost funds and ETFs. As examples:

  • The Vanguard VOO ETF gives you exposure to the entire S&P 500 at just 0.05% fees per year.
  • Vanguard’s VXUS ETF provides exposure to over 6000 non-US large cap stocks for just 0.14% a year.

A list of all of Vanguard’s ETFs is available here.

  1. Measuring the price per ounce of gold against the dollar is very tricky due to the dollar being fixed to the price of gold until 1971.
  2. The purchasing power of $71,000 in the 1900 is equal to $2 million dollars in 2000.