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Pragmatic Capitalism

Practical Views on Money, Finance & Life

How Did They Do?

By Robert Seawright, Proprietor, Above the Market

Every year Gallup asks the following question: “What do you think is the best long-term investment?” The results of themost recent query show that Americans favor real estate (25%), gold (24%), stocks (22%), savings accounts and CDs (16%) and bonds (9%).  Bankrate undertakes a monthly survey to measure how secure Americans feel about their personal finances compared to 12 months prior. The latest such survey shows that for money not needed for more than 10 years, people making six figures annually prefer to invest in stocks (34%) and real estate (32%). People making less than that prefer cash investments (29%), real estate (23%) and precious metals (18%). Women prefer cash investments slightly more than men do (30% v. 21%), while men prefer stocks more than women do (18% v. 11%).

Even though Gallup asks about “long-term investment” and Bankrate specified a hold period of more than 10 years, we can assume that the answers reflect some recency bias.  Indeed, gold was favored by 34 percent of Gallup respondents in 2011 and 28 percent last year. That said, these survey results offer some helpful insight into what the public thinks.  Putting aside the extent to which these choices are good ones, it is important to consider how each of these asset classes have performed historically as a starting point for further discussion.

With respect to cash, the average money-market deposit account yields just 0.11 percent today, according to Bankrate, and the average five-year CD currently yields just 0.78 percent. Over the longer-term, the numbers aren’t a lot better.

cash4

 

Gold has not done all that well either, suffering extreme volatility and averaging about 4 percent real since it was decoupled from the dollar in 1972.  That it has been hammered of late and seen strongly rising correlations has made matters worse.

gold-v-sandp

 

Bonds are at the tail-end of a rally that has lasted over 30 years.  Annualized returns have been very good, especially on a risk-adjusted basis.

  • 1928-2012: 5.11 percent (annualized)
  • 1962-2012: 6.80 percent (annualized)
  • 2002-2012: 5.31 percent (annualized)

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Real estate has done better but has seen much more volatility. Private real estate has seen less volatility, but pays for it via returns averaging about 3 percent lower per year.

real-estate

 

real-estate-returns2

 

Stocks are the favored asset class and have generally performed well.

  • 1928-2012: 9.31 percent (annualized)
  • 1962-2012: 9.73 percent (annualized)
  • 2002-2012: 7.02 percent (annualized)

secular-markets

Robert Seawright

Robert Seawright

Robert P. Seawright is the Chief Investment & Information Officer for Madison Avenue Securities, a broker-dealer and investment advisory firm headquartered in San Diego, California. Its focus is the capital markets and personal finance from a data-driven perspective.
Robert Seawright

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