Passive investing part 6: historical returns – bonds and real estate

This is part 6 of my posts on passive investing for Europe based investors. This post will wrap up overview of historical returns. After discussing equities in part 5, I will wrap up the overview of historical returns with overview of returns for bonds and real estate.


Bonds are assets with pre-defined payoff (coupon paid, usually every 6 months) and maturity, i.e. the date of the final repayment of the full borrowed amount by the borrower.

Due to the above, bonds are often perceived and described as less risky due to the fixed payment schedule. If you hold a bond issued by strong government (say the United States), you will get payments over the coming years as scheduled and market price fluctuations become irrelevant, to the extent you plan to hold the bond till maturity.

Note that bonds are a fairly complicated asset class with various niches. However, the more niche parts of the market are not necessarily suitable for ETFs/passive investors – I might come back to this later in more advanced articles. Or please let me know if you want me to write on this topic soon!

Government bonds

iShares Global Govt Bond UCITS ETF is an ETF that holds government bonds of developed governments with the US representing about 45% and Japan 22% at the moment. The return for the past 10 years is 2% but note that much of the return comes from years 2009-2011 when the yields around the world decreased which increases the market price of the bonds held by the ETF.

As per the Ilmanen’s book, long history of government bond returns gives an average of about 5% per year nominal yield although it is again important to note that inflation used to be much higher than what we have seen in the past 10 years.

If we use only overlapping periods for stocks and bonds (as you can see on this very useful website) you get to roughly 4.5-5% outperformance for equities compared to bonds. Note that over the long term, this is a huge difference as will be discussed in the next article.

Real estate

I won’t discuss real estate here too much as a) real estate markets tend to be driven by many local factors, b) many people do have a huge exposure to the real estate market and c) many diversified ETFs also hold, among others, real estate related stocks. Having said that, often owning a house as opposed to renting is a very good idea although in the current credit driven economies, one needs to be mindful that in some markets prices might have been pushed too far.

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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