Equities outperformed bonds by more than double over the last 125 years but have dropped below the long-term average this century to date, according to the 2025 edition of the acclaimed Global Investment Returns Yearbook.
Compiled by UK academics – Elroy Dimson, Paul Marsh, Mike Staunton – the Yearbook, now produced under the UBS flag, says equity market returns have been “striking” since 1900.
From 1900 through to the end of 2023, US shares delivered nominal returns of 9.7 per cent “versus 4.6% on bonds, 3.4% on bills and inflation of 2.9% per year”, the report says.
In real (post-inflation) terms, US equities returned 6.6 per cent per year since 1900 compared to 1.6 per cent for bonds and 0.5 per cent for Treasuries.
UK markets produced similar, if slightly lower, long-term performance, the Yearbook shows.
But the 21st century has been relatively disappointing for share investors.
“Measured since the start of 2000, stock returns have been lower than over the 20th century, though global equity investors still enjoyed an annualized real return of 3.5% and an equity risk premium relative to bills of 4.3%,” the report says.
“Yet while many people consider the long term to be ten or 20 years, the Yearbook demonstrates that much longer periods than 20 years are needed to understand trends in risk and return from stocks and bonds, because markets are so volatile and variable over very long periods.”
The multi-asset and trans-jurisdiction market analysis also highlights the corrosive effect of inflation on investment returns that even share markets can’t quite shake off.
“It is often claimed that equities are a hedge against inflation,” the Yearbook executive summary notes. “However, while some corporate earnings may be somewhat linked to inflation… [the analysis] shows that equities tend to perform especially well in real terms when inflation ran at a low level, while high inflation impaired real equity performance.”
Commodities and gold have historically proven the best inflation-hedges, albeit with important trade-offs and caveats, according to the Yearbook.
“The recent strong uptick in inflation has reminded investors about the impact of inflation.”
US inflation has averaged 2.9 per cent annually from 1900, implying one dollar at the start of the time series would carry the same purchasing weight as US$37 today.
The US reported the third-lowest long-term inflation rate out of the 35 countries in the study in a group headed by Switzerland (2.1 per cent).
While the study highlights the benefits of diversification both between and within asset classes, Dimson et al remind investors to remain wary of correlation assumptions.
“With US market concentration at its highest level for 92 years and the ten largest companies globally now accounting for around a quarter of global equity value, this year’s edition includes a deep dive on diversification,” the report says. “The challenge of rising correlations between markets, both developed and emerging, plus between equities and bonds, and of increased performance concentration among the largest companies, warrants careful consideration.”
The Yearbook, available in full to UBS clients, also highlights the dramatic transformation of the US and UK economies over the previous 125 years. For example, in 1900 rail stocks represented about two-thirds of the US bourse but barely register in 2025 in a more diversified market where tech firms amount to about a third of industry weightings.
Dimson, Marsh and Staunton have been producing the Yearbook since 2000 in an effort to translate the long-term performance of markets into practical lessons for current investors.