Impact of Inflation on Stocks, Bonds, Housing, and Gold (1900-2011)

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

The Credit Suisse Global Investment Returns Yearbook 2012 (pdf) provides an analysis of returns from 19 major developed countries from 1900-2011. An article inside called The Real Value of Money by Elroy Dimson, Paul Marsh, and Mike Staunton of the London Business School explores how different asset classes respond to various levels of inflation and deflation.

The table below taken from the article summarizes the long-run performance and inflation sensitivity of those assets for which there is a full 112-year return history available. Note that real returns, or returns in excess of inflation, are used instead of nominal returns.

Equities. Represented by a US dollar-denominated world index, equities had the highest annualized real return of 5.4% but also the highest standard deviation. Stocks were moderately affected by inflation overall, but did not do well in periods of extremely high inflation.

Bonds and bills. Represented by US bonds and Treasury bills. But in every country studied, local equities outperformed local government bonds. Treasury bills are closer to cash, with higher credit quality and shorter duration. Bonds provided much lower real returns and lower standard deviation. Bonds were heavily effected by inflation, and did worse than stocks in periods of high inflation. Bonds are the best protection against deflation.

Gold. Long-term real returns are quite low, around 1%, on par with Treasury bills but with higher standard deviation. The bright spot is that they provided the most protection against inflation.

Housing. This refers to average prices of residential real estate across many cities. Long-term real returns are about 1%. However, you get to live in your house so there is a consumption benefit. Housing is less impacted by inflation than everything except gold, but the price risk of owning a single home is probably higher than the average home price data.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

User Generated Content Disclosure: Comments and/or responses are not provided or commissioned by any advertiser. Comments and/or responses have not been reviewed, approved or otherwise endorsed by any advertiser. It is not any advertiser's responsibility to ensure all posts and/or questions are answered.


  1. Don’t let the gold bugs see this!

  2. Does anyone reading this expect to be holding any of these classes for 112 years? Better to look at 15-40 year trends as most readers will be holding assets for closer to those periods of time.

  3. For example, 112 year averages might miss some more recent trends: <— from the same report CPI in the US
    If gold provides the best protection against inflation, then during most readers' lifetimes it has been the best place to save.

  4. best real return in the last 12 years has been gold , bar none. 🙂

  5. Inflation is persistent, that doesn’t mean that gold is the best investment. Gold has had a very strong run in the past 10 years. But in the 20 years before that it was an awful investment. From 1980 to 2000 gold LOST about half its value.

  6. Has anyone been able to decipher “sensitivity to inflation” is? It seems that they’re doing some kind of regression, but they don’t really give any details on it.

  7. I don’t get it here….what is the moral of the story…these returns look pitiful any way you slice tem. So is my bank CD a better long term investment??

  8. Hello Hugo,
    Keep in mind these are inflation adjusted returns. I guess your CD depends on when you buy/bought it. I dont have a crystal ball, but i would think any CD bought right now would have a high probability of losing value, taking into account inflation. Just my opinion….

    Am i correct that the housing numbers do not take into account leverage? Im guessing the levereaged returns would be much higher for real estate, right? I understand you could say that for anything that you leverage, but in this country it is still very easy to use pretty high leverage in real estate (at least i think 5:1 leverage is pretty high….). Thanks!

  9. Thanks Shckr7,
    Please keep in mind that there is no thing as a stupid question 🙂 Since these returns are pitiful, considering the 112 yr range, and risk is an all time high, wouldn’t it be better to wait for CD rates to return to 1990 levels (double digit %’s) and stick with them for the long term? It does not seem attractive to me, but I am the type that rather have money in hand than trying to predict the future on a mathematical finance model (that economists prove to be wrong over and over).

    Hello hawks5999,
    Another contributor mentioned we don’t live for 112 yrs, therefore a 40 yr range would be best when looking at these numbers, but what if I was forced to retire in 2008, how does looking at a 40 yr range help?

  10. @shckr7 – Correct, these are just average prices and don’t take into account any leverage. Leverage magnifies both gains and losses, though.

  11. “Has anyone been able to decipher “sensitivity to inflation” is? It seems that they’re doing some kind of regression, but they don’t really give any details on it.”

    Isn’t it just the correlation coefficient?

  12. carmageddon says

    Grammar nazi (no need to post if moderated): You wrote: “Bonds were heavily effected by inflation […]”

    You’re using “effected” as a verb, meaning ‘created’, as in ’cause and effect’, where Thing is Effected because of Cause. You mean to say “Bond [returns] were heavily Affected by inflation […]”.

    If you’re upset by both Affect and Effect being both nouns and verbs, as any rational speaker of this irrational language should be, might I suggest we all agree to use ‘Xffect’ universally to mean anything like either definition?

  13. carmageddon – ur a crack up…any comments on these pitiful returns or my grammar 🙂

  14. Going to have to call BS on the gold return… I don’t know what data they’re using but all I have to do is go over to coinflation and look at the US issue gold coins.

    Last US minted gold coin in wide circulation:
    1907-1933 Saint Gaudens Double Eagle, $20.00 face value. Current melt value of $1726.11… Compound Annual Growth Rate since 1933 = 5.81%

    Calculating silver using the same method:
    1932-1964 Washington Quarter, face $0.25, current melt $6.4237.
    Compound annual growth = 7.15%

  15. HUGO:
    Keep in mind that these returns look low because they are REAL returns, that is after inflation. To get the nominal (or total) return you have to add back inflation, which over this long period I suspect averaged 4-4.5%, so the total return of stock was more like 10%. Likewise to beat these real returns you’d have to get a higher REAL return from your CD, so subtract around 2-3% (whatever you think inflation will be over the life of the CD) from the advertised yield of the CD to estimate what you will get on a real basis from the CD. Then you can compare that lower real yield on the CD to the returns in the table above to make an apples to apples comparison.

  16. JohnnyH, most of that gold return came from inflation. According to the St. Louis Fed’s website, inflation was 3.6% compounded since 1933. I’m still getting a real return on gold of 2.06%, though, which is double that cited in the study. Perhaps there was some kind of mis-match in the price of the coin you site versus it’s bullion value in 1933 and they are using gold bars or some average of global prices of gold? Or gold depreciated significantly on a real basis from 1900-1933? I don’t know because I haven’t read the study.

  17. @Andy, ah I see the original study adjusted for inflation?… Still, even that is controversial as there is much contention on how inflation should be quantified. I do not think CPI is an accurate measure of inflation. Virtually every entity that ever printed, underestimated their own inflation.

    Subsequently, I cannot count the fed’s numbers as an unbiased source… The value of the gold coin I am only calculating the melt value at today’s spot and the starting value was based on a time when USD was redeemable in gold. Adding the numismatic value would ad at least 10% on old US issue coins.

  18. @shckr7

    How does leverage help you ? You still have to pay interest on the mortgage. So unless the you house is appreciating faster than your mortgage rate, leverage does not help you much.

    For example, if you buy a house for 100k all on credit ( just to keep the math simple) and your mortgage rate is 3% and the house appreciates by 3%, your gains due to leverage are not much.

    You do get to live in the house but also have to pay the tax+maintenance+insurance+risk that housing will depreciate

  19. Kudos for this post. The Credit Swiss Yearbook is one of very few reliable sources that provide a truly big-picture view of investing across the globe. I wish more people were aware of it. Instead most people focus on what happened in the last year or, at best, the last decade. Which of course leads to such asinine conclusions that gold is the ultimate “safe” investments and equities are worthless.

    Almost every adult should be investing starting from mid-20s (first paycheck) and holding some mix of investments for 50+ years. What happens in one decade is basically irrelevant, other than the fact that asset classes that skyrockets in the last decade are probably overpriced now and asset classes that lagged are cheap. If you focus on a decade at a time you’d be buying stocks in the late 90s and gold or treasuries now — the exact opposite of what you should have been doing.

  20. Forex Training Guy says

    Gold has been a great factor of insight in the last few years but I think most people forget that it was absolutely atrocious in the prior 20 years or so. I wonder what the next best thing will be? After all, every asset experiences a boom and a slump.

  21. @Long Term Returns: You would agree though gold should be part of your AA? I think it should be. As the above stats show it does over history keep up with inflation.

    @Forex Training Guy: stocks.

  22. Forex Training Guy says

    @investor Junkie: ???

  23. The answer to you question: the next big thing.

Speak Your Mind