The current state of play

In this opening post I give a current overview of the different asset classes as I see them. Over the next few weeks I will go into details of the valuation techniques used to arrive at these figures.

In the chart below I show the estimated the future annualised returns of holding the different asset classes for a duration of 15-20 years based on current prices.

Estimated future returns on a range of popular asset classes

These are net returns and take into account the typical management charges associated with owning funds.

Real estate currently looks to be the most profitable investment. You'll notice that the 8%+ p/a returns are based on leverage real estate (meaning having a mortgage on the property). I've included this on the list as it is the typical way that an investor would acquire an investment property. Unleveraged property (meaning you buy the property outright without a mortgage) is also on the list in the interest of fairness. The other Real Estate entries refer to REIT ETFs.

Stocks are currently attractive and the above figures are based on investing via a low cost ETF, typically charging 0.3% to 0.75% TER per year. The above are large cap markets (FTSE100 for UK, Xinhua 25 for China, etc).

Government and corporate bonds currently look unattractive as returns of around 4.5% are available on 5 year term cash deposits.

Similarly Gold and Silver look expensive in comparison to historical prices and currently present little value going forward.

So there you have it. This is a quick post just to give the current situation in the market and the options available. I will go into more details of valuation methods and ways of investing in each of the asset classes later. I will also speak about asset allocation and risk along with other issues on this topic.