Historical Asset Class Returns: The 100-Year Scorecard
Historical asset class returns since 1928 for nine investments, from small caps to T-bills, and why only three of them grew faster than the money supply.
Topic
Wealth Creation: The Few Assets That Beat M2
Creating wealth, in our research, means growing faster than the money supply, and over the 97 years in Part III only three of the nine asset classes managed it.
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US small caps finished at about 136 times their starting share of the money pool, the S&P 500 with dividends reinvested at about 24 times, and Baa corporate bonds at 1.14, which is a 14% real gain spread over almost a century.
Everything else lost ground, from farmland and gold down to T-bills, which kept only about 5% of their 1928 share. The pattern in the winners was the same each time: equities, held for decades, with every dividend put back in.
- 64,626x US small caps since 1928 An M2-adjusted value of about 136.5, the top of the scorecard.
- 11,570x S&P 500 total return since 1928 With every dividend reinvested, about 24 times what M2 did.
- 539.5x Baa corporate bonds since 1928 An M2-adjusted value of 1.14, only just ahead.
Articles on Wealth Creation
1 article from our research on this topic.
Plain-English definitions
Key terms for wealth creation
- Total return
- Price growth plus every dividend, rent payment or coupon put back into the investment, as opposed to price alone.
- M2-adjusted value 1.0 = break-even
- An asset’s growth divided by M2 growth over the same years. Above 1.0 it gained share of the money pool, below 1.0 it lost share.
- Hurdle rate
- The return needed just to break even with money printing. In most decades since 1928 it was higher than the yield on safe savings.
- Normalised to 1.0
- Setting every asset to the same starting value so growth can be compared on one chart regardless of the original price.
FAQ
Questions about wealth creation
Answers drawn from the figures in our research. Educational only, not financial advice.
Which assets created real wealth over the last century?
Three, on our scorecard. US small cap stocks grew 64,626x since 1928, the S&P 500 with dividends reinvested 11,570x, and Baa corporate bonds 539.5x, which is only just past the 473x growth in M2. Small caps carry more risk than the broad index, so we wouldn’t treat the order as a recommendation. Farmland, gold, government bonds, oil, US real estate and T-bills all lost purchasing power.
Why did so few asset classes beat money printing?
Because the bar was higher than most safe yields in almost every decade. When we set M2 growth against safe savings rates decade by decade for Part III, money printing won nearly every time, and in the 1940s and 1970s it was running close to 10% a year, which no bond or savings account kept up with. To stay ahead an asset needed a high return and an owner willing to reinvest the income for decades, and in practice that meant equities held for a working lifetime.
Sources