Historical Returns & Standard Deviation for Stocks, Bonds & Commodities

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Stocks, bonds and commodities offer you three different investment classes, each with its own historical rate of return on investment -- the long-term annual arithmetic mean. Before choosing one investment class over another, you should also examine the standard deviation from that mean for each investment -- essentially, the volatility of each investment class. Your chances in a given year of actually achieving the arithmetic mean diminish as the standard deviation increases.

Rates of Return for Stocks

Market analysts and historians do not agree on the rates of return for either stocks or commodities. Nevertheless, most studies within each class draw conclusions within broad rate-of-return ranges that provide you with some general guidance. Most studies that include dividends in the return rate analysis for stocks conclude an arithmetic long-term mean from about 9 percent to a little over 10 percent. One carefully controlled study by economics professor Roger Ibbotson and his associates based their results on the returns from stocks in the Russell 3000 index from 1979 through 2004 and the returns from the smaller stock list in the S&P 500 index from 1970 through 1978 and reported that for the entire period of 1970 to 2004, the examined U.S. stocks had an arithmetic annual return of 12.6 percent.

Rates of Return for Commodities

Commodities offer a wide range of indexed investments. The Goldman Sachs Commodity Index (GSCI) represents a dominant commodity index choice for investors. From January 2002 to December 2005, the GSCI produced a 23.78 percent compound annual return. Over longer periods, the GSCI has generally, but inconsistently, outperformed the S&P 500 index.

Rates of Return for Bonds

Bonds exhibit markedly different return rates than stocks or commodities. If you hold a bond to maturity, the return rate equals the rate on the face of the bond. For highly stable bonds, such as U.S. Treasuries, the investment to maturity represents a small degree of risk. From 1926 to 2010, U.S. Treasuries returned 5.4 percent. Nevertheless, rates have varied from a 2010 low of essentially negative interest to a high in 1982 of almost 33 percent.

Standard Deviations

The Ibbotson study calculated the standard deviation for the studied stocks to equal 17.23 percent. The Ibbotson study also concluded that long-term commodities futures in the examined period had moderately higher rates of return than equities. Nevertheless, in the short term, commodities investments exhibited slightly higher standard deviations. The standard deviation for returns on bonds can be calculated but remains essentially meaningless for long-term investors because at maturity a given investment will return the face rate of the bond.

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