We cannot predict the future but we can learn from the past.

Learning objectives:

Interpret past data of different investment assets and compare their behaviour in terms of returns

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The graph illustrates the return over time for each asset assuming that 1$ has been invested in beginning of 1928. Although there is a multitude of assets, for the sake of simplification we will focus on good old stocks, bonds and cash.

Stocks values increase and decrease more dramatically than bonds value that itself varies more than cash. Stocks have historically the greatest variation in their value and also the highest return. The volatility of stocks makes them very risky in the short term, but over long periods of time stocks generally offer high positive returns.

Bonds returns are generally less variable, but bonds offer lower returns. Note however that you can find highly volatile bonds that behave similar to stock, those bonds belong to high-yield category also called junk bonds. On this page when we refer to bonds we will refer to government bonds.

When we talk about cash we don’t refer to bills or coins one may put under his mattress, but rather to investments such as saving deposits, treasury bills, or money market funds. They are the safest investments and in general they are guaranteed by the government. Those investments are the less risky but also offer the most modest returns. The risk in this kind of investment comes from higher than expected inflation.

You can now use the graph on this page and display each asset individually and see their variation in absolute term or display them together and see their relative variation so you can better compare them.

Also you can change the window time through predefined values by selecting the corresponding box or by changing the window width on the time scale. Then select the period of interest by moving the sliding bar.

Few interesting observations: Before performing some comparison analysis between the three assets, it is worthwhile to spend some time by looking at each of them individually. You can select on the drop down list one of the three different assets and then for each of them vary the period of time by changing the duration and by moving the sliding window on the time scale.

One interesting observation for instance is to set the zoom value to max, and start with the cash asset. Here you can see that 1$ invested at the beginning of 1928 worth 1.55$ end of 2010. Also note how cash investment increased a lot after the 1929 crisis and then it decreased during the Second World War.

When you select the Bond asset and set the zoom value to max, you can see that from 1928 to 1980, Bond investment was barely able to offer positive real returns, and then its value increased by almost 5 times until 2009. 1$ invested in bond at the beginning of 1928 worth 4.55$ end of 2010.

When you select stock asset, you can easily identify long periods of time during which stock performed very poorly, for instance between 1939 and 1942, or 1966 and 1975 or even more recently between 2000 and 2009. On the other hand, stocks had a very good ride between 1950 and 1969 or between 1981 and 2000. 1$ invested in stock beginning of 1928 worth about 128$ end of 2010.

Don’t hesitate to select the time horizon you want and slide the window over the whole time scale from 1928 up to now. This is the best way to realize to what extend assets’ returns have fluctuated over the last 83 years.

Let’s now compare the three assets’ returns. Set the period length to its maximum. You can easily see that the stocks experienced a significantly higher growth than bonds and cash but stocks also had dramatic ups and downs. Holding stocks for the past 83 years was by far the best investment choice. But let’s be more realistic and look at what happens when we take shorter durations.

Select a 5-year period of time, and slide the window, see how stock asset varies significantly compare to the other assets. For such investment periods, stocks were not always the best investment and you can easily find cases where your investments can be very badly impacted such as (-21%, 2004-2009), (-32%, 1973-1978), (-35%, 1970-1975), (-42%, 1937-1947), (-33%, 1928-1933).

Now select a 20-year time horizon and slide the window. You can see that stock returns over a 20-year period have always been positive, which is the case neither for bonds nor for cash.

For every 30-year period of time stocks have always beaten bonds and cash.

By now you should have a better understanding of the return and risk characteristics of the three major asset categories, stock, bond and cash.


Stocks asset correspond the U.S. large-cap stock (S&P Composite), bond asset is based on the long term U.S. Treasury Bonds (10-years bond) and cash asset is based on the U.S Treasury Bills (3-month bills). The raw data for Treasury bond and bill returns is obtained from the Federal Reserve database in St. Louis (FRED). The Treasury bill rate is a 3-month rate and the Treasury bond is the constant maturity 10-year bond, but the Treasury bond return includes coupon and price appreciation. It will not match the Treasury bond rate each period.
Data come from the Damodaran Online website, maintained by Aswath Damodaran, Professor of Finance at the Stern School of Business at New York University.

As you may have already noticed, the historical assets’ returns shown on this graph are after inflation return. This is different from most of the graphs showing asset return variations you may have seen before. Considering returns after inflation is a lot more relevant since it results in real returns and thus it is directly related to your purchasing power. Inflation is based on the Consumer Price Index published by the U.S Department of Labor.

Furthermore returns correspond to total returns, meaning that they have been calculated assuming that stocks dividends and interest payment have been reinvested. About the dividends, it is important to know that they have contributed more to the total return of the stock than the stock’s price appreciation.
Note also that friction costs such as transaction costs and taxes have not been taken into account but this is an acceptable limitation since it will not change significantly our comparison analysis in terms of risk and returns.

Note that the crash in October 1987 does not appear on the graph, this is due to the fact that data points are based on year end values combined with the significant increase of the stock market before the crash. On a calendar year basis the large cap stock index actually grew by almost 6%.
For similar reasons, the crash that occurred in October 1929 is not well shown. In order to observe those specific events more in details, graph based on daily data must be used instead of yearly data.

The graph shown in this webpage goes from 1928 to 2010, but there are many financial papers or books that cover longer period of time. For instance in the book titled ‘Stock for the Long Run’, the author, Jeremy Siegel wrote that since 1802, for every rolling 5-year period stocks outperformed bonds 71% of the time, and for 10-year periods it goes to 80%, and finally when you take 30-year periods it is 100%. You can easily observe the latter case on the graph presented here.


On this page we have focused on the three main assets, but of course there are many more assets, and most of them are made accessible to small investors (especially through ETF). The main assets can be further classified along several characteristics, for stocks for instance they can be categorized based on their market capitalization (large, medium, small), their style (value, vs growth), their country/region (domestic vs foreign) or their industry.
Then you have also the so-called alternative investments that include commodities, hedge funds, private equity, derivatives, managed futures and distressed securities.

Those days, an investor should think more and more about global asset classes.
Using ETF is a good way to diversify widely and keep the cost low. But due to the recent growth in ETF industry, now you can find all sort of ETF. Some of them are very much narrowed in terms of industry or style for example and in general they come with higher expense ratio. If you decide to go with ETF, look at the expense ratio.

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