I find I enjoy analyzing equity markets more than any other. But as I have always said, you must always be objective when reviewing the data.

And what does that data show?

Stocks have not been the best performing asset class over the past 40 years. Outperformed not just by Oil and Gold, but Bonds as well.

click for larger chart

Category: Commodities, Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

30 Responses to “Stocks Oil, Gold, Bonds for the Long Run?”

  1. going broke says:

    I’d like to apologize to TBP readers as I was the one who fabricated the above chart. This chart started out showing nominal percent changes from 1970 to date on yearly averages on prices for metals, commodities and whatever. For some reason, I inserted data I had handy for the S&P (yearly average without reinvesting divi’s). Since I have literally 1000′s of data sets plastered in my computer, it’s easy to grab the wrong data. Barry asked if I could add something about bonds to it (the 10YR treasury bond return which includes coupon and price appreciation was handy). It turned out my inserted data was not compatable. In the past, Barry knows I’ve double checked my data for accuracy but this time I failed to do so. Kudo’s to the ones that caught my mistakes and, please don’t blame Barry for my error.

    (originally published at 3:52pm)

  2. TripleSigma says:

    Does this include dividends? That is an important factor.

  3. machinehead says:

    There seems to be something wrong with the S&P 500 return. It started 1970 at 90.92, according to Yahoo Finance. So on a price-only basis, it rose by a factor of 13.82 times, or 1,282%, through the end of 2010.

    Maybe the intention was to compare price-only returns, since that’s the only source of return for gold, silver, copper and oil.

    But the 1,720% return for 10-year T-notes HAS to include coupons. A fair comparison would contrast the total return of owning the S&P 500 (including dividends) to the total return of owning 10-year T-notes.

    And to go one step further, one would then examine risk-adjusted return, using the Sharpe ratio or similar measures. This is where bonds really shine, as they are much less volatile than stocks. By contrast, silver does quite poorly in risk-adjusted return.


    BR: A very fair criticism

  4. DC says:

    Sure looks like oil and gold are way overdue for reversions to the mean.

    Yes, the developing world has billions of new drivers and more income for jewelry purchases, etc., but those sound an awful lot like variants on “it’s different this time,” don’t they?

  5. DL says:

    Of course, one needn’t confine oneself to the S&P500 index. No doubt some sectors within the S&P have done quite well.

    In any case, as long as the Fed funds rate remains far below nominal GDP, and as long as the yield curve remains upward sloping, gold and oil will continue to kick ass.

  6. broseidon says:

    On a total return basis the S&P500 outperformed gold by by about 60bps annualized over this time frame. You could also certainly argue that the starting decade is somewhat misleading as gold was governmentally controlled to be undervalued entering the decade.

  7. J Kraus says:

    It would be interesting to see this chart redrawn with each component corrected to a constant dollar index of USDX=100. This would leave the S&P, US Treasury Bonds, Electricity and Inflation unchanged, but would lower the commodities significantly as part of their rise is due to the drop in value of the US dollar.

    As an example, the big spike in oil in the chart is coincident with the all-time low in the dollar index of 70.7.

  8. RW says:

    Nominal price comparison charts are not very realistic even within the same asset class and between classes are misleading at best. Investors earn risk adjusted, compound total returns and for an apples-to-apples comparison on that basis you need a metric like M-squared (Modigliani-Modigliani).

  9. Sechel says:

    Great chart B.R.. I wonder if oil wins out if one picks other start and end period.
    My one caveat would be is that electricity is derived from Oil in some measure.

    Another interesting question is whether Oil can replace Gold in one’s portfolio as a way to reduce risk.


  10. machinehead says:

    Here’s a handy calculator which allows you to determine the total return on the S&P 500 index, including dividends, between any two monthly dates from 1871 to the present:


    From Jan. 1970 to Nov. 2010 (the last update available), the S&P 500 produced a total return of 9.87% compounded annually. Plug this into Excel: (1.0987^40.833 years) = 46.689 final value of a 1.000 starting investment. That’s 4,569% — putting the S&P total return comfortably ahead of both crude oil and gold on this chart.

    The S&P beats gold and crude in risk-adjusted return, too. But its lead over bonds shrinks considerably on a risk-adjusted basis.

    A revised version of the chart, incorporating the total return S&P, would be more interesting.

  11. machinehead says:

    Footnote #2 to an Oppenheimer Funds document, ironically titled ‘Big Picture,’ states:

    Stocks, as measured by the S&P 500 Index, had an average annual total return of 9.7% for the 1970–9/30/10 period. Bonds, as measured by a combination of 50% Barclays Capital Long-Term Corporate and 50% Barclays Capital Long-Term Treasury Bond Indices, had an average annual total return of 8.4% for the 1970–9/30/10 period. Treasury indices are total return indices held at constant maturities.


    Oppenheimer’s annual compound returns correspond to ending values of 4,250% for the S&P 500 total return and 2,575% for their bond index over the same period. The latter figure is higher than the 1,720% value shown in the chart above, because of the higher yield on corporate and longer-term (up to 30 years) Treasury bonds.

  12. JaundicedEye says:

    While we are dissecting this seemingly simple chart, someone please tell me how they would have owned oil over that period? That chart certainly can’t represent rolling futures contracts from 1970. The cost of storing say 50,000 barrels for 40 years should be included, or is that too ridiculous?

    I’d like ideas about profiting from the poor performance of the USO. They get killed every month when they roll contracts, its a horrible instrument. So how can a small investor make some moolah?

  13. formerlawyer says:

    Kudos to machinehead.

    Totally off-topic, the narrative that wont die:


    The link to the Republican Party’s totally off-base “analysis” is here:


  14. formerlawyer says:

    Sorry I meant to include this link as to SP returns and echoes of Barry’s ideas:


  15. Robespierre says:

    “Stocks have not been the best performing asset class over the past 40 years. Outperformed not just by Oil and Gold….”

    Bernarke, High priest of markets and such.

  16. derekce says:

    Oil and gold exploded up after the U.S. went off the gold standard in 1971, then equities caught and surpassed oil and gold in the Internet bubble by 1999. After the equity bubble popped, soon after 9- 11 happened and oil and gold have gone straight up. It seems like gold and oil’s outperformance is due more to people’s fear of geopolitical risk than anything else.

  17. Greg0658 says:

    “total return on the .. index, including dividends” .. and splits
    but but but what coulda shoulda been with a BoD that sent along cuts to the enablers in the 2nd place

  18. aiadvisors says:

    um…. you can make data say what you want simply by picking the starting point. Starting your analysis with 1970, you are guaranteed to make stocks look bad and oil and gold to look great. In the 70′s stocks sucked and oil and gold exploded. Start with any other decade, either before or after and you’ll get a suprisingly different result.

  19. Sechel says:

    Looking in a rear view mirror is always interesting, but aiaadvisors is right.

    We have some interesting dynamics going forward.
    High Unemployment
    A housing sector that will not contribute toward future job growth
    increasing food and energy prices
    Competition from Asia and abroad for commodities.

    This tells me that corporations will be hard pressed to pass on price increases.
    That as far as the consumer is concerned demand for food and energy is relatively inelastic.

    My bet is that corporate debt beats stocks, and that commodities are an area we want exposure too.
    Stocks are not cheap and thus likely to disappoint.

  20. cognos says:

    BR – did you really bone this one? “price return” only on spx? The kind of amateur statement expected of Bockvar or Maudlin.

    I note, gold, oil, and physicals actually COST money to store, secure, and insure. Say -1% annually.

    It’s a classic mistake to look at stock “price index” levels from 70s and think it was a bearish period. While it was worse than the 80s and 90s, div yields in the 70s were often 5% or more… So the narrowly selected “flat” ten year index period still returned 6% on a total return basis…

    But long-term bears rarely care about info. It’s a belief system – rosenberg, faber, grantham, roubini, etc


    BR: Its price only, no dividends

  21. ToNYC says:

    The medium is the message. The picture mainlines its period and scale AS IF it were THE whole story. I stand soliciters on their head by always asking to recast performance instead of starting with the low at lower left and carefully note the scale. I’ve seen quality-templated charts that encompass but a few hours with what last Century was a four minimum price changes of 4 eighths or fitty cents. No meaning but you got so done on your retina.

  22. modons says:

    For these long time periods, please use a log ordinate. It would be nice to see details early in the record.

  23. Wes Schott says:

    …i thought it meant that he finally got it,

    that it is a bull market in stuff!…and has been for 10 years

    oh well…past performance is no guaranty of…

  24. wally says:

    “And what does that data show?”

    The data – as always – show what happened yesterday. In this case it shows that controllers of a couple of commodities were able to get the world by the balls. Having a monopoly, of whatever form, is the surest and best way to make money.
    But the question is: who will be in that position tomorrow?

  25. Bruman says:

    My first reaction is that we need to compare asset classes by total return figures, but I see that came up already with the S&P 500. Also, owning commodities isn’t just about the price appreciation, but also the storage costs. With small amounts of gold, one might keep it in a home closet or safe, but oil is a lot trickier. With futures (and ETFs that use futures to track the underlying), you’d have to add in (subtract, really) the roll yield.

    You’d also have to be willing to hold gold and oil during the two decades when it wasn’t going anywhere.

  26. darkstar says:

    What it seems to show to me, really clearly, is that you need to make one trade per decade or so. Own gold from 1970-80. Switch to bonds or equities for 20 years. Then switch back to gold in 2000. How would your returns look if you did that? Off the top of my head, I think $1000 would have turned into about $2,000,000 if you did that. Not bad…

    The other thing that struck me is the inflation rate – what costs just 5x as much today as in 1970? I think the T-bond growth rate (approx. 17x) is probably a closer barometer of REAL inflation, and how much the price of a house, a gallon of gas, the price of a paperback book, etc has gone up since then.

  27. [...] – Stocks vs – just about everything else. [...]

  28. Greg0658 says:

    me above @3:05pm “shoulda been with a BoD that sent along cuts to the enablers in the 2nd place”

    most of you’all do such a great job spending the time to clearly say what you want to get across .. sometimes I treat this wide open space like a tweet .. so a tweet out thanks .. back to this post it note:

    “enablers in the 2nd place” was/is the “Buyers of stock & corp bonds – who provide the working capital to grow – the food to the muscle in that body guided by the brain”

    the brains “enablers in the 1st place” who (imo) seem to think they outweigh the body in the process & thus reward themselves to the bodies detriment .. (like that doesn’t happen on any/many fronts)

    “cuts” = dividends to 2nd placers

    .. and beyond that M&A (eating the smaller competition) is good business strategy but not good community policy

    .. that line in the movie “Greed is good” there must be a line somewhere “competition is better” there must be another line somewhere “refereed competition is good”

  29. cognos says:

    Why is this not corrected?

    S&P500 returned 4670% total return over this period, easily besting all other options shown!

    Tbills returned 0% in “price index”… (which would just be silly, so there is no justification for separating “price” from “total return”).

    SPX is also the most “investable” item shown… as rolling crude futures would have a different return profile and actually buying/storing/insuring the oil or gold would have MUCH lower returns. The housing item is non-investable. Electricity… again… non-investable. Etc.