the real real returns

B

billyjoerob

Via Business Insider, I saw the pdf linked below. It tallies up after tax, expenses returns for different asset classes. Stocks come in first, bonds are in the middle, and SFHs and commodities are at the bottom.

What's interesting is that even after the huge bond bull market over the last 30 years, the real return on bonds has been lousy (the underperformance vs. stocks and munifcipal bonds is largely due to tax).

However, the real estate number is tricky because the returns on real estate are not taxed. You don't get taxed on the "imputed rent" of living in your own home, but the investor is taxed on the income. And the longer you live in your home, the more valuable that imputed, untaxed rent becomes. So I think this info may be a little misleading and underestimate the benefits of home ownership. There is a difference between owning a SFH for investment vs. aboding.
 

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Here is a calculator to have fun with stock market returns.

http://www.moneychimp.com/features/market_cagr.htm

The numbers are basically the same as in the pdf for 1982 thru 2011.

There are a number of different ways to calculate the growth rate. If you take the total appreciation ($22.1 on $1 investment) and divide by thirty, you get 73% appreciation per year. Not bad. Take the geometric rate (30th root of $23.1 ie the CAGR) you get 11%. The arithmetic mean is 12.5%. Of course as an investor what you really care about is the CAGR.

I wonder if the low inflation rate isn't responsible for much of the growth in inequality. The lower the inflation rate, the more wealth compounds. As inflation increases, it depresses real returns but not income from labor, to the extent wages keep up. Inflation is a tax on wealth, and the lower the tax, the more wealth and the more inequality.
 
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