Rates of return: what history shows

History shows we cannot expect smooth growth for our investments year after year. History also gives us a realistic and useful starting point for what you might expect in future, especially if you consider a wide range of markets over a long period of time.

It can also help you resist the danger of losing all your money from chasing unrealistic returns. When returns from well regulated investment markets go down, disappointed people sometimes get drawn into extremely risky products or even outright frauds.

101 years of history

Here's what a survey of 101 years of investment returns from 16 financial markets around the world shows. (Of course, past historical performance might not be repeated).

See Triumph of the optimists, by Elroy Dimson, Paul Marsh and Mike Staunton (3 academics from the London Business School), published by Princeton University Press, 2002. Reproduced with permission.

Compound real rate of return after inflation 1900-2000
Financial asset	Australia	World*
Shares	7.5% per year	5.8% per year
Bonds	1.1% per year	1.2% per year
Bills	0.4% per year	0.9% per year**

* Worked out by weighting 16 major markets according to size
** US bills

Assumptions made
You:

bought and held your assets and reinvested your money for the full 101 years
chose assets that exactly matched the overall market
subtracted inflation each year before working out your return and
calculated returns each year in US dollars to remove the impact of changing exchange rates.

Read more about rates of return

Copyright 2002
Elroy Dimson, Paul Marsh and Mike Staunton.

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FIDO Website: Printed 03/12/2010