Bonds Beat Both Stocks And Cash For The Last 15 Years 1999-2014

The return from cash in the Vanguard Prime Money Market Fund has been 2.3% per year for the last 15 years, according to Morningstar. Note that the return over the last one, three and five years of that period has been effectively zero, which is what you get also from gold at all times and in all places . . . plus the shine.

The return from stocks in the Vanguard S&P500 Index Fund has been 4.2% per year for the last 15 years, according to Morningstar. Note that the one, three and five year returns have been three to five times the 15 year return. The S&P500 is currently very richly valued, and in real terms its level is about 7.1% off its all time high in August 2000.

The return from bonds in the Vanguard Total Bond Market Index Fund has been 5.15% per year for the last 15 years, according to Morningstar. At the current NAV of 10.71, the price of the fund is richly valued, about 2% above what looks like the historical high end of normal at around 10.50 per share.

Ben Bernanke Is A World Class Thief And Should Be In Jail

The average annual return to cash for the three years since July 2010 has been 0.04%, for example in VMMXX, Vanguard's Prime Money Market Fund, but over that three year period inflation has absolutely raged at 7.18% overall, with the all items CPI soaring to 232.944 from 217.329. With about $10 trillion stuffed away in M2, returns to cash just keeping pace with inflation would have come to $718 billion to savers by now. Instead they've reaped just $4 billion (annually).

In a related note here, the contribution to GDP over the period from the Zero Interest Rate Policy and Quantitative Easing has mirrored the criminal returns to cash:

'But it turns out that the benefits of printing all that new money may have been negligible. According to a new study by two senior US economists, America's second programme of quantitative easing, nicknamed "QE2", boosted economic output by just 0.04pc.'

The rich have gotten richer the old fashioned way: they've stolen it.

Real 10-Year Cost Of Being In Cash

With an average annual return of 1.77% in the last 10 years, July 2003 to July 2013, the cost of being in cash in VMMXX comes down to the inflation-adjusted return because inflation has averaged in excess of the nominal returns to cash: 2.43% annually over the period. That results in an average annual real return of -0.644% in cash. Ouch. By contrast, the real rate of return of the S&P500 has been +4.63% annually June 2003-June 2013, dividends fully reinvested. Going back 38 years to the inception date of VMMXX, 6-4-1975, the S&P500 has returned a real rate of 6.83% per annum. Cash has returned a nominal 5.58%, but with inflation averaging 3.95%, the real rate of return in cash has been just 1.568% per annum since 1975.

Rosie May Be Right: Cash May No Longer Be Safe

David Rosenberg points out that financial repression could go on as long as 2018, here:

[T]he Fed said in its December post-meeting press release that it will not budge from its 0% policy rate until the U.S. unemployment rate drops to 6.5%. It is currently around 8%.

We have done estimates based on various assumptions and found that achieving this Holy Grail likely takes us to the opening months of 2018 or another five years of what is otherwise known as financial repression.

People think their money is safe in cash, but it isn’t.

Following on that, just compare cash in the form of Vanguard's Prime Money Market Fund with stocks in the form of Vanguard's Total Stock Market Index Fund over the last five years and you will see that while cash was relatively safe compared to stocks for the four years up to May 2012 with stocks mostly underperforming cash, since then stocks have firmly broken out, as of about May 31, 2012 (the dot on the chart grabbed from Morningstar).

The only problem is that with a Shiller p/e today of 24.26 it's an awfully rich time to be investing in stocks which have reached new all-time highs.

And the alternatives don't look very attractive either.

At this hour the gold/oil ratio stands at 15 indicating that relative to each other their prices may have normalized but both at high levels relative to the long term.

Housing prices also are at the far upper end of the long term trend prior to the bubble.

And the bond market is within 2% of its highest valuations and also remains expensive to buy.

In my humble opinion the smartest thing to buy under these conditions is any long term debt one may be carrying at a rate of interest higher than about 3.5%. To retire it one would have to deploy capital, i.e. savings, but you can hardly lock in say 6.25% for twenty or twenty-five years anywhere else more easily than by retiring a 30yr-mortgage taken out at that rate in 2007. Bonds have returned less than 5% annually over the last ten years, and one year returns have fallen below 3.5%.

Still, there is no substitute for savings.

The surest way to get a 10% return is to save one dollar of every ten earned.

Vanguard Prime Money Market Fund 3yr Return: 0.05% Annually

That figure is not inflation-adjusted, which if it were would mean sizeable negative returns.

Meanwhile the S&P500 Index for the 13 years since 2000, adjusted for inflation, is up 0.05% annually:

Stocks Have Barely Beaten The Lowly Money Markets From The March 2000 Highs

For the full thirteen year period since March 2000 (when the S&P500 reached the last of six annual new high watermarks going back to 1995) to March 2013 (when the index had firmly revisited the 1500 level) stocks have barely beaten the performance of the lowly money markets.

Had you invested $10,000 in, say, the Vanguard S&P500 Index Fund, VFINX, you would have reaped an extra $3,900.02 (39%).

But the same amount invested in Vanguard's Prime Money Market Fund, VMMXX, would have netted you $3,370.96 (33.7%).

Charts from Morningstar using Vanguard data:

Compared To Cash Or Stocks, Bonds Were Best In Last 5 Years

Not adjusted for inflation, the average annual return of the S&P500 Index has been about 0.84% over the last five years, October on October, dividends fully reinvested, but you didn't get much sleep.

The average annual return of the Vanguard Prime Money Market Fund has been about 0.76%, November on November, and you slept like a baby.

Stocks vs. cash has been nearly a wash, but the average annual return of the Vanguard Total Bond Market Index has been 5.88%, November on November. The big gains began in earnest late in 2008.

As of March $2.7 Trillion Held in Money Market Mutual Funds

Seen here:

According to the Investment Company Institute, more than 50 million Americans keep at least some of their assets in money market funds. As of March 2011, in fact, some $2.7 trillion was held in money markets—about 25% of all mutual fund assets in the United States. Equally compelling is the fact that in the 40-year history of money market funds, only two funds have seen their net asset values dip below $1 per share (often called "breaking the buck"). During that same period, in contrast, some 2,800 U.S. banks have failed, according to the Federal Deposit Insurance Corporation.