Stocks vs. Commodities: Which is a Better Investment?

Over these last couple of weeks, which have not been an easy period for investors throughout the world, it has been more interesting than ever to examine what the best kind of investment in the long run has been.

In order to answer this question we have carried a comparison study of the annual returns in nominal and real terms (adjusted to inflation) of the S&P 500 Stock Index and Reuters' CRB Commodity Index from 1956 until now.

In addition, we have calculated the annual returns of some main commodities.

In order to avoid misleading by extreme values at the beginning of the period and at the last period, we used the 12 months moving average values as reference.

The result of the study is given in the table below:

From the table above, we can see that investing in the S&P 500 Stock Index with dividend (average annual yield of 3.18% over this period) has given, on average, far better returns in real terms: 5.88% CAGR (Compound Annual Growth Rate).

In contrast, investing in Reuters' CRB Commodity Index has given negative returns in real terms: -0.97% CAGR over the same period. Some commodities, like oil, natural gas, gold and silver, have given positive returns in real terms during this period, but the average return on investing in all of these commodities was lower than investing in the S&P 500 index.

Naturally, there were periods that commodities have given much better returns than stocks, but on average, over the 53 year period, stocks were much better investments than commodities.

Reuters CRB Index Composition

In summary, we have shown that over the long run (last 53 years), stocks, on average, have been a much better investment than commodities; and furthermore, most commodities have given negative returns when calculating the figures in real terms.

Comments

[bigmoney:]

I am not sure why this is. Maybe owners of capital have more leverage than owners of commodities, geo-politically speaking.

2008 Oct 03 07:13 PM

[User 317568:]

I'd like to see the same analysis against the other, much more widely used, commodity indexes. The S&P GSCI and the Dow Jones AIG come to mind. The story will be markedly different, not to say that commodities are superior to stocks, but the real return won't be less than 0.

2008 Dec 11 12:24 PM

[fdfe:]

or the RICI?? where is the RICI?

Sep 06 01:04 PM