Before investors put their cash into a particular asset or asset class, they first seek to gauge the returns and risk they could expect from the different types of assets available. Fund managers constantly seek this type of information in order to maximize returns for investors – this leads to what is termed as “the herd mentality”, where too many investors rush into the markets blindly chasing stocks they’ve heard about and try to make a big score overnight.

Modern portfolio theories have proven through research that this does not make money consistently over the long term. Instead they suggest the best way to invest is to pick assets that deliver the kinds of returns you’re looking for with the amount of risk you can handle.

Returns are important and most investors fixate on returns. Ever since the Lehman Brother’s crash in 2008, risk assessment has become just as important. The Global Financial Crisis exposed the dangers of global financial markets. When stocks fall by more than investors expect, they’re tempted to make an irrational decision and potentially damage their longer term financial success. The best way to assess the different investments’ returns from different assets classes is by analysing them over the long term.

Many analysts believe that longer term averages are more reliable and are less likely to be skewed by short-term volatility. Here are the long term performances of some favourite assets

Investment                          Return              Risk               Number of years

Stocks (S&P 500)                           8.97%                     18.8                       136

Stocks (Hang Seng)                       10.30%                  20.1                       81

Value-priced stocks                      14.62%                  14.5                        33

Growth stocks                                 11.96%                   18.8                        33

Municipal bonds                             4.24%                    8.8                          150

Corporate bonds                            8.00%                    5.9                           150

Treasury bills                                  5.10%                    3.4                          172

Commodities (CRB index)         5.53%                    18.4                        93

Gold                                                     1.14%                     11.9                        313

‘Return’ is the average annual compound return. ‘Risk’ is the standard deviation. Please note that ‘Value’ can be defined differently by different people, and the differences can be large. I have omitted emerging markets as a category because this series goes back 87 years. Imagine what countries would have been “emerging” 87 years ago.