From traditional asset classes like stocks and bonds to alternative investments such as real estate and cryptocurrency, the investment universe is vast and diverse. Each asset class has its unique risk and return characteristics, historical performance, and role in portfolio diversification. In this article, we'll rank different types of investments by their historical return, highlighting some of the highest-performing asset classes over time.
Methodology
Ranking investments by their historical returns can be tricky. Several factors can significantly impact an asset's performance over time, including inflation, changes in interest rates, geopolitical events, and shifts in supply and demand dynamics. Furthermore, the time frame under consideration can significantly alter the rankings, as different asset classes may outperform others in different periods. Therefore, our ranking will focus on long-term average annual returns as a measure of performance.
1. Stocks
Historically, stocks have been one of the highest-returning asset classes. According to data from the S&P 500 Index, the average annual return from the U.S. stock market has been around 10% before inflation from 1926 to 2021. This includes the reinvestment of dividends. It's important to note that while stocks can deliver high returns, they also come with significant risk, as evidenced by market downturns and periods of volatility.
2. Real Estate
Real estate has been a consistent performer over the long term. The FTSE Nareit All Equity REITs Index, which tracks the performance of the U.S. Real Estate Investment Trust industry, reported an average annual return of approximately 9.5% from 1972 to 2021. Individual real estate investments, such as rental properties or real estate development, may offer even higher returns, depending on factors like location, property management, and market conditions.
3. Bonds
While they typically offer lower returns than stocks, bonds have provided steady income and preservation of principal over time. According to the Barclays U.S. Aggregate Bond Index, the average annual return for the U.S. bond market was around 5% from 1976 to 2021. Government bonds tend to offer lower yields than corporate bonds due to their lower risk.
4. Gold
As a traditional store of value, gold has a long history as an investment. The annualized return of gold from 1972, when the U.S. abandoned the gold standard, to 2021, was approximately 7.5%. Gold's performance can be quite volatile, often spiking during periods of economic uncertainty.
5. Cryptocurrency
Though they have a much shorter history than other asset classes, cryptocurrencies have delivered astronomical returns over the past decade. For instance, since its inception in 2009 to 2021, Bitcoin, the first and most well-known cryptocurrency, has seen an average annual return that far outpaces traditional investments. However, these returns come with extremely high volatility and risk.
Final Thoughts
While historical returns can be a useful guide, they shouldn't be the only factor in making investment decisions. A well-diversified portfolio tailored to your risk tolerance and investment goals is often the best path to long-term financial success. Remember that past performance does not guarantee future results. Always conduct thorough research and consider seeking advice from a financial advisor before making significant investment decisions. The investment world offers many opportunities for return, but understanding each investment's potential risks is just as crucial for success.
