So we’ve already gone through why growth investments aren’t a wise move when you look at the numbers, and I’ve gone through how to avoid the marketing hype around growth investments. This week, let’s look back historically at how growth investments have performed compared to more conservative investments.
Now as with all types of history, of course, it depends upon who’s writing it. The investment industry likes to write history in a way that keeps the hope for growth investments alive and helps growth investors keep the faith.
But no matter how an investor looks at it, on a risk-weighted basis (to use investment industry jargon), safe, conservative investments have actually outperformed growth investments for the past 10, 20 and 30 years! (…and YES you read that last sentence right.)
Why Safe Investments Outperform Growth Investments
If you didn’t know that safe investments have historically outperformed growth investments, you’re not alone. Not many people do!
What you also might be surprised to know is that you don’t have to look far to find this fact out. This “second place” finish for growth investments has been acknowledged in many reputable articles and published studies:
“The generation-long outperformance of bonds over stocks has been the biggest investment theme that everyone has just gotten plain wrong,” – Bloomberg, October, 2011
“In fact, Arnott’s research showed that for any starting point since 1979, an investor who bought 20-year treasuries and each year rolled them and their income into new 20-year treasuries, would have outperformed the S&P 500.” –Financial Post, September, 2011
“Not only have the average annual stock returns been poor over the last 10 years, but relative to bonds, stock returns look mediocre over the last 20, 30, and even 40 years.” –Ibbotson, July, 2009.
If you’re young, you should not accept the risks that come with growth investments because history clearly shows us that you have the opportunity to grow rich slowly, easily, and safely.
So now you’re probably wondering, what does the current cycle say? Tune in next week while we look at how this model applies to our current economic cycle.