Equities are relatively risky investments. So the biggest question for an equity investor is: will my equity investments generate better returns than bonds over the long term?

Moreover, given that US Treasury Bonds are considered to be the safest investment instrument in the world, an even better question might be: over the long term, do my equity investments beat US Treasury Bonds?

Because if the answer is ‘no’, then that means that you’re taking on extra risk without getting higher returns to make up for it.

So… what’s the answer to that question?

Well, the answer is that equities do indeed beat US Treasury Bonds — but historically, they’ve done so only in a few specific markets.

In other words, outperforming long-term equity returns are the exception, not the norm.

Surprised? Here’s some hard data to support this claim:

The chart above details the performances of 15 major country-specific indices over the last 30 years, along with the performance of the US Bond Market Index over the same period.

Now, if you examine the real returns of these indices in USD terms, it turns out that only 5 markets (Mexico, Canada, China Mainland, India, and the USA) generated returns higher than the real returns of the US Bond Market Index.

In other words, 2 out of 3 major markets failed to beat the US Bond Market Index in terms of real USD returns over the past 30 years.

Even in local currency terms, there is no index which has generated double-digit real returns over the last three decades.

What does this mean for you, the Indian retail investor? There are two key takeaways here:

• While nominal returns can look quite glitzy, you should look at the real returns for a reality check.

• You should diversify your portfolio with multiple asset classes (such as equities, gold, bonds, etc.) so that you’re not fully reliant on equity outperformance.

For more actionable insights backed by data and analyses, we invite you to read the latest edition of Netra in its entirety.

Check our Netra blogs for January 2025:

• Closing in from all sides!
• The marriage that never was!