Investment Returns by Asset Class (1985 to 2024)

April 1st, 2024 | Posted in Tools

This analysis covers historical investment returns by asset class (from 1985 to 2024) for a wide set of investments — including stocks / bonds in the U.S., Canada, and beyond.

We’ll dig into questions such as:

• Does any investment asset class consistently outperform the rest?
• How do asset classes compare based on long-term average returns, minimum / maximum returns, and volatility?
• What were the best (and worst) investments of 2023?
• What is the correlation level between assets? For example, do bonds perform well when stocks go down?

The goal of this analysis is to understand how different investments have performed in the past, so that you can chart out an informed path ahead for your investment portfolio.

Armed with a good sense of how your investments might perform in the future, you can think through major financial plans or decisions — whether that’s renting versus buying your home, forecasting your retirement age, or just getting a general grip on where your net worth trajectory is headed.

A Universe of Investment Options

For those who’ve looked into historical investment returns, you’ve likely come across data based on the S&P 500 — an index that tracks the performance of the 500 largest publicly-traded companies in the U.S.

While the S&P 500 index covers the companies that feature prominently in American business news (Apple, Amazon, Microsoft, Google, JP Morgan, and the like), there’s a whole wide world out there that isn’t being covered. If you wanted to invest in technology companies in China, bonds in Europe, gold, or real estate, you won’t find those options in the S&P 500.

Broadly speaking, the ‘universe’ of investment options can be broken down by:

• Underlying asset type — whether that’s stocks, bonds, or other assets such as real estate, commodities, etc.
• Country — developed countries (such as the U.S., Canada, Germany) versus emerging markets (such as China, India, Brazil)
• Risk level — stocks of large mature companies versus small high-growth firms, government bonds versus high-yield / high-risk corporate bonds

Paul Simon sang about the “50 ways to leave your lover”, but oddly he forgot about the 100+ ways to build a portfolio…

For this analysis, we’ll stretch ourselves beyond the S&P 500 and take into account these 12 asset classes:

For each of the 12 asset classes, we’ll be working with the annual returns from 1985 to 2024 — a total of 40 years. Note that all returns in this analysis are the “real total return” values — meaning that they are adjusted to take into account inflation, and the re-investment of dividends. The values for 2024 are based on the year-to-date values as of March 31, 2024.

There’s quite a bit of data to process, and showing the raw numbers isn’t particularly helpful for digesting the information. Without further ado, let’s get started on slicing, dicing, and prettying up the data.

Periodic Table of Investment Returns by Asset Class

The table below shows the annual performance of each asset class. For each year, the values are shown in ranked order — the best performer appears at the top of the table, and the worst performer is at the bottom.

Hover your mouse over the cells in the table to highlight the returns of a single asset class. Scroll left to see data going back until 1985.

Note: The average in the last column shows the compounded annual growth rate (CAGR) for each asset class across all years. All values are real total returns.

It’s no easy feat to pick the winner in a given year. The asset class rankings appear to be randomly tossed about over time, with the top performer in one year often falling down to the middle or bottom of the table in the next year.

11 out of 12 of the asset classes have been a top performer in at least 1 year on record (high yield US bonds being the odd man out). On the flip side, 9 out of 12 of the asset classes have been the worst performer at some stage (Canadian stocks, Canadian bonds, and high yield US bonds being the only assets to avoid the dishonour).

Now the same data is presented, but in a more traditional line chart format. While the periodic table format above does a good job of showing the ranked order (which asset class was first, second, third…), the chart below helps us to visualize the absolute values and the gap between asset classes (how much better the first asset was compared to the second).

Click the asset class labels in the chart legend to toggle them on/off from being displayed.

It’s interesting to see how “US large cap stocks” have performed relative to “All US Bonds” over time. While stocks were down in the years of 1990, 2000-2002, and 2008, bonds actually made gains in those years — this provided valuable portfolio protection to investors who were diversified.

However, notice how this inverse relationship broke down in 2022, with stocks and bonds both suffering heavy losses. This meant that a typical 60/40 portfolio fared poorly in 2022. Unfortunately, keeping your eggs in multiple baskets doesn’t always pay off.

Which Investment Asset Classes Have the Highest and Lowest Returns?

Over the whole period of our analysis (1985 to 2024), the best asset classes were:

• U.S. large cap stocks: +8.3% per year (annualized real total return)
• U.S. small cap stocks: +7.4% per year
• Emerging market stocks: +7.1% per year

At the bottom of the list, the worst performing asset classes were:

• International bonds: +2.5% per year
• Gold: +1.9% per year
• Cash (T-bills): +0.4% per year

Unsurprisingly, stocks come out on top in terms of pure investment returns, while bonds and other assets lag behind. This data demonstrates the investing cliché that “higher risk leads to higher returns”.

Next up, we’ll take a closer look at the performance of the asset classes by year, and a deeper dive on volatility and correlation levels.

Year in Focus

Use the drop-down menu below to zoom in on a single year. The investment returns for each asset class in that year will be shown.

This allows us to focus on specific events in market history — such as the great financial crisis of 2008, when stocks plunged by 30-50%, while bonds and gold actually recorded slight gains.

The Best and Worst Investments of 2023

2023 was a year of strong investment returns, where asset prices rebounded strongly after suffering large declines in 2022:

• All 12 of our tracked asset classes increased in value in 2023 (on a real total return basis)
• An investment in U.S. large cap stocks was the top performing asset of 2023, returning +22.1% (after suffering a loss of 23.6% in the previous year)
• Global stocks outside of the U.S. delivered relatively weaker returns (compared to the U.S.) — with International stocks at +13.8%, Canadian stocks at +8.1%, and Emerging market stocks at +5.2%
• Cash was the worst investment of 2023, returning only 1.6% on an inflation-adjusted basis

The Best and Worst Investments of 2022

2022 was a topsy-turvy and primarily painful year for investors:

• All 12 of our tracked asset classes declined in 2022 (on a real total return basis)
• The biggest driver of these losses was red-hot inflation — with roughly 7% inflation over the year — spurring stern central bank responses via interest rate hikes
• An investment in cash (through U.S. T-bills) was the top performing asset of 2022. However, the real total return was still a decline of 5.2%
• Real estate (through REITs) was the worst investment of 2022, with a loss of 31.1%. Higher mortgage rates and commercial real estate vacancies drove the significant decline
• 2022 saw stocks and bonds drop hand-in-hand by roughly 20%, much to the despair to traditional 60/40 investors
• Canadian stocks offered relative respite for investors, declining by “only” 11.9%

Single Asset Class Deep Dive

Use the drop-down menu below to focus on one asset class at a time.

The bottom chart in this section shows the range of returns using short, medium, and long-term time horizons. The potental range of outcomes is very wide when you look at returns over only 1 year, but the range narrows and becomes more predictable as the time horizon gets longer.

Correlations Between Investment Returns by Asset Class

The chart below shows the correlation level between each pair of asset classes, over the whole analysis period.

The values shown are correlation coefficients (a.k.a., Pearson’s R values) that measure the strength of the relationship between each pair of asset classes. A value of 1 indicates a strong positive relationship; a value of -1 indicates a strong negative relationship; a value of 0 indicates no relationship between the two asset clsses.

A few takeaways here:

• All categories of stocks have fairly high correlation with each other (values close to 1)
• Bonds have minimal correlation with stocks (values closer to 0)
• Gold has a slight negative correlation with some of the other assets

Final Thoughts, Notes & Sources

And that’s a wrap.

After sifting through a heap of data, my key takeaways are:

• It’s hard (perhaps impossible) to predict which asset class will be the best performer in any given year. There doesn’t seem to be a rhyme or reason to the annual rankings
• Investment returns are far more reliable if you have a long time horizon. The risk of losing money is much higher if you’re only investing over a 1-year period, rather than a 5, 10, or 20-year period
• Diversification has clear benefits. Allocating a portion of your portfolio towards bonds will often cushion your losses in years when stocks tumble.

All in all, it’s my firm belief that the optimal investing strategy relies on a few simple steps — invest in a diversified passive portfolio, stay invested over the long-term, and re-balance when necessary.

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The periodic table format was created by Jay Kloepfer of Callan in 1999.

Data was sourced from Yahoo Finance, Vanguard, iShares, Libra Investment Management, and the Bogleheads forum. All of the data used in this article can be downloaded here in spreadsheet form.

Note: this post was first published on November 15th, 2020. The latest update occured on April 1, 2024.