The Long View on Asset Class Returns

Here’s a good look at the 30,000 foot view of three major asset classes – gold, t-bonds and stocks.  The following is the rolling 10 year average total returns since 1937.  Gold was pegged prior to the 60’s so the data is a little light there.  But I think the chart tells an interesting story for those of us who believe in mean reversion.

My big conclusions:

• Bonds are likely to perform much worse in the next 10 years than they have in the last 10 years.
• The gold rally probably isn’t over yet, but we’re closer to the beginning of a downside mean reversion than we are to a big upswing.  That means gold is also likely to perform worse in the coming 10 years than it has in the last 10 years.
• Equities are coming off of a rather stagnant period and in the process of reverting upward.

I don’t really do the whole “buy and hold” thing, but if I had to bet on the asset class that outperforms over the next 10 years I’d most definitely bet on equities.  But of course, it’s silly to put all your eggs in one basket.  Proper macro portfolio construction is all about understanding a hierarchy of asset classes and understanding how different instruments serve differing roles in a portfolio.  But still, it’s a useful big picture view of the world…..

Chart via Orcam Investment Research:
 

Cullen Roche

Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.

He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.