Investment Comparison – What is the best one?

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If you’ve always wanted to know what the best financial investment has been in the past few years, you’ve come to the right place. For this purpose, I made an investment comparison all different types of financial investments here. Then we will try to deduce what the future might bring.

Preface

Like almost everyone, I also had the dream of becoming a millionaire as a child. What I could afford with all that money. I wanted to have a Ferrari, a big house and, of course, to play all day. In no way did I want to work all day like my parents. Instead, I wanted to go skiing or swimming.

But as a child, you have no idea how to make so much money. But when we grow older we know better. It’s not that easy and usually involves a lot of work. But there is also another option such as investing money. If our parents had invested $30,000 at an interest rate of 8% when we were born, we would be millionaires by the time we were 46. If you want to learn more about compound interest, just read the article.

But is there any investment that promises such high returns? To do this, we can first look into the past and then draw conclusions for the future, if necessary. Which investments have performed best in comparison? What do you think?

Investment comparison – types

Stocks were first mentioned in a document in Sweden in 1288. In Germany, they were first traded on the Berlin Stock Exchange in 1785. In simple terms, a stock is a share of a company. The more shares you own, the greater your stake in the company. If the company distributes profits, you will receive them in the form of dividends.

A bond is a debt security. This allows companies, banks or the state to borrow money to finance something. In the case of the government bond, the federal government also finances its government spending, among other things. They usually offer a fixed term and a fixed interest rate.

Gold was used as a currency almost 1,500 years ago. Even today, many people still invest in the ore. Today, it can only be mined at a very high cost. Moreover, it does not occur in infinite quantities on earth. That is why the price kept rising. The amount of gold mined so far would make a cube with an edge length of about 20 meters.

The purchase of real estate represents another form of investment. Here, the value of an apartment, house or land is evaluated.

P2P loans are a relatively new type of financial investment. At peer to peer lending one person lends money to another. To do this, certain platforms broker the loans without involving a bank. You can lend money there and receive interest for it.

I deliberately did not compare the savings book, because no one has ever become a millionaire by saving on a savings book. The interest rates are simply too bad at the moment.

Investments-comparison-1928-2019

Investment Comparison – 1928 until 2019

First, I would like to look at a period of over 90 years. Despite the many financial crises, investments have developed very positively. In 1929 there was the big crash on the New York Stock Exchange and then came the recession and World War 2. Also the oil crisis had only a short influence on the development of the investments.

In the chart above, the three investments start at 100% in comparison. The S&P 500 index has performed the best over the period with an increase of 5.5% / year. It is followed by the Dow Jones with 5.1% and gold with 4.7%. However, as you can see, there were also times when gold was ahead. This is therefore only a snapshot.

Although the percentage differences are not that high, the final value does vary widely. If we had put $1 US in each of the investments in 1928, our net worth would be as follows. We would have $132 in S&P 500 in 2019; $95 in Dow Jones; and $67 in an investment in gold. Although the difference in returns of 5.5% and 4.7% for S&P 500 and gold, respectively, is not that great, but gold has only performed half as good.

Investment Comparison – 1975 until 2019

In this period, the difference is much more serious, as you can already see. In addition, I would now like to look at other assets where there was no data before. I have replaced the Dow Jones with the MSCI World index, as this is very often used as a reference. In addition, you will find real estate price index in the analysis and a US Treasury Bond.

Also this time the shares are at the top of the field. The S&P 500 is gaining at a rate of 8.5% / year. The capital invested would now be worth 36 times as much. Then comes the MSCI World with 7.4% growth. Next up is the US Treasury Bond at 6,95%. I was very puzzled by this value, because this investment is considered very safe and is less known for a high return.

Real Estate and Gold are last with an appreciation of 4.6% / year. Real Estate has of course the other advantage that you can also earn money with renting during the time you posses it.

Now, if we had put 1 US dollar into each asset in 1975, our balance sheet would be as follows.

  • Dow Jones = $35.8
  • MSCI World = $23.4
  • US Treasury Bond = $19.3
  • Gold and Real Estate= $7.2

These differences are enormous, aren’t they?

Investment Comparison – 2014 until 2019

I chose this range because I wanted to include the relatively new money investments in the comparison. These are the p2p or peer to peer loans. According to my own experience and research, you can expect good interest rates there. For investment comparison purposes, I assumed a 7% increase in p2p real estate and 10% increase in the other peer to peer loans.

During this period, real estate prices in particular have developed much more strongly than in the longer view. Thus, there is a shift in forces. However, with the exception of the German government bond, all investments have performed very well.

The winner here are p2p loans at 10.0% / year, but closely followed by the S&P 500 at 9.4%. This is followed by p2p real estate with 7.0%. This is followed by the MSCI World with 6.6% and gold with 6.4%. And then comes Real Estate with 5.3%. At the end of the list is the US Treasury Bond raising an average of 3.0%.

It will be exciting to look at this period over another 5 years and compare the development.

Investment Comparison – Summary

What they should learn from this is that monetary investments over a long period of time always increase. The longer their investment horizon, the more speculatively they can invest their money. Nevertheless, you will make a profit, even though you may suffer a loss in the short term.

Since we do not know how the future will develop, I recommend diversifying investments. Don’t bet on just one horse. Even though stocks have performed the best over the last 50 years, that doesn’t necessarily mean they will over the next 50.

Real estate is also always a good investment, even though it may yield lower returns in comparison. They are relatively safe and you can determine with the help of a simple calculation whether it is worth buying a particular property at the moment or not.

The peer to peer loans are a relatively new form of investment and give us the opportunity to invest money without much fluctuation. Here you can profit very well from the compound interest effect. However, please note that these p2p loans are not 100% safe and you can also lose your invested capital.

I look forward to updating the article again in a few years and seeing how each investment type has performed.


GELVOS is all about “How to make money without stress”. For this purpose, all articles about finance and joy of life are divided into these sections: make. save. invest. live. If you don’t want to miss anything, subscribe to our free newsletter and get a big step closer to your goals!

This article is not an investment advice, it is only our personal opinion. We report here only on our personal experiences and findings as private investors. Thus, my texts serve solely to impart knowledge and do not constitute an invitation to buy or sell investment products. For further information please refer to the disclaimer.

Source references:

https://fred.stlouisfed.org/series/USSTHPI

https://nma.org/wp-content/uploads/2016/09/historic_gold_prices_1833_pres.pdf

https://finance.yahoo.com/

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