Passive investing part 5: historical returns – equities

This is part 5 of my posts on passive investing for Europe based investors. Even though I will follow the order as indicated in part 1, please feel free to ask or share any related thoughts in the comments below. In this post we will look at the risk and returns of the asset classes I wrote about in my previous article.

Expected returns

There is a fantastic book, although aimed at professional audience, on the subject, Expected returns by Antti Ilmanen. For the purpose of this series of articles, I will summarize roughly what returns did investors experience in the past and how these might relate to the future. In examples below I will use iShares ETFs as this provider is the most relevant for European investors at the moment.


Equities provide returns to investors in two ways. Either by dividends or by capital appreciation (i.e. stock prices increasing). Neither of the two sources of income is guaranteed which makes many classify equities as risky.

Developed market equities

For recent history, we can look at iShares MSCI World UCITS fund. The return of past 10 years is annualized 8.87% and 6.35% since inception 13 years ago. If we look at world equities in the past 30 years, we get to approximately 6% average nominal return. Even longer history gives a bit higher returns (above 8% based on the Ilmanen’s book) but this includes periods of much higher inflation. It is important to understand that the realized return each year is rarely close to the averages above and it is in fact very often far from it with both losses of more than 10% and returns of more than 20% relatively frequent! (see MSCI world history till 1970)

Emerging market equities

If we look at the iShares Emerging Markets UCITS etf , past 5 years delivered average return of -0.20%. The MSCI emerging market index delivered about 3.6% annualized return since 2000. It is fair to note that the recent years were unusually bad for the emerging markets due to readjustment of the Chinese economy and the end of the supercycle in commodities.

Bonds & Real estate will be covered by the next part.

I would like to know what you think! Please feel free to share your thoughts in the comments below or using the contact form to reach out to me directly.

Published by everydayinvesting

Amsterdam based. There will definitely be a bias towards topics relevant to my work. I'm interested in investing, markets, economics, politics, history but also machine learning, statistics and how (whether) all these can be combined. I have questions and let me know if you have answers! Always happy to discuss any of the below and more. - can machine learning be applied to investing? - what's the future of active investment management? - what's the future of passive investment management? - where's the best trade now?

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