Time travel: the only way to guarantee the best investment returns

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If you had time machine, where should you have invested for the past 30 years?
If you had time machine, where should you have invested for the past 30 years?

It’s nearly thirty years to the day that Marty McFly set out in his time machine1. He left 1985, and will arrive with us on 21st October 2015. Now, with thirty years of history we know how his infallible knowledge of the future will have lead him to invest after he returns to 1985?

It wasn’t a clear decision; investment returns are uncertain for all of us, and even knowing what is going to happen markets behave in unusual ways. The graphic below shows which sectors have done well, and which have done less well over the past three decades. By way of a key, the sectors are:

  • UK Gilts: FTSE Actuaries UK Conventional Gilt up to 20 Years TR
  • UK Property: IPD UK All Property TR
  • Sterling Cash Deposits: Halifax Liquid Gold 10K
  • European Equities: Euronext AEX TR
  • UK Equities: FTSE All Share TR
  • Global Equities: MSCI World
  • Japanese Equities: Nikkei 225
  • US Equities: S&P 500 TR
  • Hedge Funds: HFRI EH Equity Market Neutral TR
  • Gold: LBMA Gold Bullion LBMA Sterling/Troy Ounce

Not all indices were available for periods, but are colour coded for (relative) ease.

30 years of investment returns (click to enlarge)
30 years of investment returns (click to enlarge)

I can’t see any pattern, which is unsurprising, as basic modern investment strategies suggest that individual investors should spread their assets over a broad range of different types. By making assumptions on the future returns of each asset class, the consistency of these returns (or lack of it), as well as how each sector might move when compared to the other sectors, we can try to build an efficient portfolio. This is not infallible of course, but in the absence of a time machine it’s the best we can do.

If you have a time machine get in touch – we’d be delighted to work with you. If you don’t have a time machine – we have the expertise to provide some structure to the uncertainty of investing.

1Marty McFly may have been a fictional character. Model portfolio theory, described here, is more clearly documented. Data in the graphic is provided by Financial Express.

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26 Apr 2024

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