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Credit Suisse proved that your money’s better off in equities than housing

Credit Suisse’s 2018 Yearbook revealed the adage we’re all used to – that housing provides a larger financial reward at lower risk – is wrong. Actually, since 1900, the quality-adjusted real capital gain on worldwide housing has been approximately -2 percent a year.

The financial crisis showed that housing can take a real hit: from their late-2005 peak until the 2012 low, US house prices fell by more than 36 percent in real terms. Despite two savage bear markets, from 1900 to 2017, returns across global equities have averaged 5.2 percent.

Something else that caught my eye is the changing face of equity markets, in terms of relative size. At the end of 1899, the UK accounted for 25 percent of global stock markets, the US 15 percent and Germany 13 percent. At the end of last year, the US accounted for 51.3 percent, Japan 8.6 percent and the UK 6.1 percent.

Writing this has reminded me of Ruchir Sharma’s recent book “The Rise and Fall of Nations”. The banking veteran argues that our way of figuring the world in terms of growth prospects is now moribund, because growth is not a certainty, nor is widening prosperity. I’ve often wondered if the growth paradigm itself is wrong altogether. The Equation of Exchange (which is used to show the relationship between money and growth) means aggregating the prices of goods and services which, particularly in today’s tech-based and intangible world, feel almost incomparable.

 

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Comments: (2)

Melvin Haskins
Melvin Haskins - Haston International Limited - 05 March, 2018, 07:35Be the first to give this comment the thumbs up 0 likes

This goes to show that you can prove anything with statistics, provided that you choose your start date. The UK equity market at the end of 1999 was at almost exactly the same level as it is today, yet house prices in the UK have doubled in the same period. Choosing 1900 as a start date is advantageous to prove your theory. Try picking 2000.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 05 March, 2018, 10:08Be the first to give this comment the thumbs up 0 likes

Totally agree with @MelvinHaskins. Financial advisors keep saying "you can't time the markets". But history has shown that timing probably matters more than anything else in determining rate of returns of various financial investment products.

In my blog post Stocks Always Underperform Fixed Deposits (hyperlink removed to comply with Finextra Community Rules but this post should appear on top of Google Search results when searched by its title), I referenced an article that studied trends from March 1992 to March 2012 and concluded that fixed deposits outperformed stocks. As I pointed out that in my post, if the study had started just one year later, the article would've reached exactly the opposite conclusion.

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