When you start investing, one of the most important questions is: what sort of return can I expect?
This depends on the type of investment you choose.
Over the years, we have learned: cash is safest but barely grows, bonds sit in the middle, and shares (equities) offer the best chance of growth – but with bumps along the way.
What Are These Investments?
- Cash: Money held in bank accounts or savings products. It earns interest, but usually only a little more than inflation.
- Bonds: A bond is essentially an IOU. Governments or companies borrow money from investors and pay interest (called a coupon) until the bond matures. They sit between cash and shares in terms of risk.
- Shares (Equities): Buying shares means owning a slice of a company. Returns come from dividends and growth in the company’s value. They’re riskier, but historically the most rewarding over the long term.
What returns should I expect
Looking back over history helps us set expectations.
- Cash: Over the last 50 years in the UK and US, cash savings have typically returned about 1–2% above inflation at best in good decades. In low-rate eras (like after 2008), the return was close to zero.
- Bonds: Long-term government bonds have delivered around 3–5% per year above inflation, though this depends heavily on interest rate trends. The “bond bull market” from the 1980s to 2010s was unusually strong as interest rates fell steadily.
- Shares: Equities have been the star performer. According to Jeremy Siegel’s classic book Stocks for the Long Run, US stocks returned around 6.5–7% a year above inflation over the last 200 years. UK data tells a similar story. But returns came in bursts — some decades were fantastic, others disappointing.
Equities Through the Decades
Looking at the last 50 years, equities show both promise and volatility:
- 1970s: Tough years. Inflation was high, real returns for shares were weak.
- 1980s–1990s: Golden decades. Falling interest rates, economic growth, and globalisation drove double-digit annual returns.
- 2000s: “Lost decade” for equities. The dot-com crash and financial crisis meant many markets went nowhere in real terms.
- 2010s: Another strong run, particularly for US stocks, with technology leading the way.
The lesson? Equities usually win in the long run — but patience is essential.
Comparing the Three
If you had invested £100 in 1975:
- In cash, you might have around £500 today (barely keeping pace with inflation).
- In bonds, you could have closer to £1,000–£1,500 depending on the type.
- In shares, that same £100 could be worth £3,000–£5,000, even after inflation.
Why This Matters for Investors
- Cash is for safety and short-term needs.
- Bonds help smooth the ride and provide income.
- Shares are the growth engine — but only if you can leave the money invested for many years.
Key Takeaways
- Shares have delivered the highest long-term returns, averaging 6–7% above inflation.
- Bonds sit in the middle, providing steadier but lower growth.
- Cash is safe but unlikely to grow wealth in real terms.
- Each plays a role in a balanced portfolio.
What should you do after reading this: Look at your own portfolio and ask: am I holding too much in cash for long-term goals? Could I balance my risk better with a mix of bonds and shares
