The best investments of the last quarter century

The stand-out performer in the first quarter of the 21st century has been the oldest investment of all.

Bank of England Gold Vaults

It is the key argument for investing in shares: if you take a long view, then you will do better than putting your money anywhere else. Persuading people of this has made small fortunes for brokers and advisers, but they are unlikely to say “if you take a long enough view…” since that rather dilutes the message. We are within days of being a quarter through the 21st century, so how’s it going so far? The kind folks at Deutsche Bank have run the numbers, so we don’t have to.

Holding shares for long enough does indeed make them well worthwhile, although an inflation-adjusted 6.9 per cent a year from US equities since 1800 is a bit of a stretch for even the most patient investor. Deutsche starts its magnum opus with a little light entertainment, looking at the forecasts made in 2000, which mostly confirmed the old adage that forecasting is difficult, especially for the future. 

For example, the projections for the US budgets fretted about the world running out of dollars to hold, as the projected budget surplus ate them all up. As we know now, quite the opposite happened; the world is awash with greenbacks after a quarter of a century of incontinent administrations.

In 2000, US share prices were at the peak of the dot-com boom, and it took more than a decade for buyers then to see any return, adjusted for inflation. Yet even those who piled in at the top and held on will have seen equities outperform both cash and bonds in the quarter century. That is hardly a surprise considering that both were such miserable investments during the decade of QE, that economics experiment which drove borrowing costs down to just one per cent. As normality has returned to interest rates, yields of four per cent plus are helping their returns catch up with shares.

Yet the stand-out top performer in the first quarter of the 21st century has been the oldest investment of all, that barbarous relic, gold. Despite its lack of any return, the price has multiplied eight times since 2000. The wars and inflation that eat the value of paper assets tend to reinforce enthusiasm for the world’s first true store of value. It helps that the US administration has printed 19bn $100 bills, half of them in the last decade, and most of them are held outside the US. It is hardly a surprise that despots, criminals and drug dealers may feel they have enough greenbacks and, like central banks nearly everywhere, reckon a little diversification is in order.

As for the rest of us, we can read the Deutsche study, dream of clairvoyance, and hope that we don’t have to wait another 25 years to make a decent return on our savings.