Don’t be blinded by US ‘success bias’

Although stocks are the best long-term investment option, long-term returns may not be as sweet as investors might think, according to Credit Suisse’s latest Global Investment Returns Yearbook.

The yearbook confirms stocks have outperformed bonds and bills in every country since 1900. In the US, easily the world’s biggest market, stocks have generated real returns of 6.4 per cent annually.

However, US returns are atypical. Focusing on the second-most successful stock market (Australia tops the list) can lead to “success bias”, so investors must look at non-US returns. Excluding the US, real global returns fall to 4.3 per cent annually.

Irish returns mirror non-US indices, with annualised returns of 4.2 per cent.

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Put another way, a dollar invested in US equities in 1900 would be worth $2,024 today, compared with $176 for an investment in stocks from the rest of the world – less than a tenth of the US value.