Long-Term Investment Returns: Shares, Bonds, and Savings Accounts Since the 1950s

Long-Term Investment Returns: Shares, Bonds, and Savings Accounts Since the 1950s

The landscape of personal investment has undergone significant transformation since the 1950s. This article explores the historical performance of shares, bonds, and savings accounts, examining how each has fared in terms of returns, particularly in the context of fluctuating interest rates. We’ll look at specific historical examples and assess which investment vehicles have consistently delivered the best returns over the long term.

Historical Performance Overview

Stock Market Returns

Since the 1950s, the stock market has experienced significant growth, despite periods of volatility. For example, during the post-war boom of the 1950s and 1960s, the S&P 500 saw substantial gains. The index continued to grow, albeit with fluctuations such as the sharp decline in 1973-1974 due to the oil crisis and inflation, and more significant crashes like those of 1987, 2000-2002 during the dot-com bubble, and the 2008 financial crisis.

However, over the long term, the stock market has provided substantial returns. From 1950 to today, the S&P 500 has returned about 7% to 10% annually on average, significantly outpacing inflation.

Bond Market Performance

Bonds have offered more stable but generally lower returns compared to shares. The bond market has been influenced heavily by interest rate changes; for instance, during the high inflation of the late 1970s and early 1980s, bond yields were exceptionally high. In 1981, yields on ten-year U.S. Treasury bonds reached an all-time high of around 15.84%, reflecting the high-interest rate environment (the Federal Reserve had pushed rates to curb inflation).

Since then, bond yields have generally decreased, especially in the post-2008 financial crisis era, as central banks maintained low interest rates. Long-term returns on bonds have averaged around 5% to 6% annually, which is lower than stock returns but higher than traditional savings accounts.

Savings Accounts

Interest rates on savings accounts have mirrored the general interest rate environment. During periods of high inflation and high-interest rates, such as the early 1980s, savings accounts offered returns of 10% to 12%. However, these high returns were not sustained as interest rates began to fall. Over the past two decades, particularly after the financial crisis of 2008, interest rates on savings accounts have been minimal, often below 1%.

Comparison and Long-Term Trends

When comparing the long-term performance of these investment vehicles, shares have consistently outperformed both bonds and savings accounts in terms of average annual returns. This outperformance holds even when considering periods of economic downturns and market corrections.

Historical Examples and Lessons

One notable period was the 1980s when despite high-interest rates, the stock market began a historic bull run that lasted until the early 2000s. This era highlights that while savings accounts offered attractive rates temporarily, they could not match the exponential growth potential of shares.

Similarly, during the 2000s, despite the dot-com bust and 2008 financial crisis, those who remained invested in shares typically saw substantial recovery and gains in subsequent years, underscoring the benefits of long-term equity investing.

The historical analysis clearly shows that while savings accounts provide safety and liquidity, they do not offer the growth potential of shares. Bonds provide a middle ground with moderate growth and lower volatility. However, for long-term wealth accumulation, equities have proven to be the superior choice, consistently delivering higher returns despite their volatility. This long-term perspective is crucial for investors aiming to build and preserve wealth through various economic cycles.

Speak to one of our advisers today, to answer any questions you may have on managing your investments, to ensure the best (for you) long-term financial benefits.