Bonds and Treasury Bills have registered real losses in the last 123 years. Portugal is one of 6 countries (out of 21) where government bonds have generated losses for their investors. Investing in government debt is not a good investment. In the last 123 years, Treasury bonds have registered an average real return of -1.7% and Treasury Bills have lost, on average, 1.1% per year. This means that since 1900, investors who have lent money to the Republic have lost money. Among the 21 markets analyzed over the past 123 years by Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School for Credit Suisse, Portugal is one of six countries in this situation. However, Portugal is the only country in which long-term debt securities (government bonds) yielded less than short-term debt securities (Treasury bills) between 1900 and 2022. In theory, this dynamic reveals that over the past 123 years, investors considered Portugal to have more risk in paying off its short-term debt than its long-term debt. In a healthy public finance environment, the relationship would be exactly the opposite. However, it is not indifferent to the occurrence of several events over all this time that can impact these results. Just remember that Portugal lived under a dictatorship for 48 years (1926 to 1974). For this reason, João Duque, economist and president of ISEG, notes that "it is convenient to disaggregate by periods because averages hide realities." Doing that exercise, shredding the performance of public debt securities into two other periods, the conclusion is no different. Between 1973 and 2022, for example, Treasury bills continued to generate losses for investors, accounting for an average annual real return of -0.8% and bonds -0.5%. And even when only the last 20 years are considered, Treasury bills continue to generate losses for investors (-0.9%). "This reasoning implies that investors are exposed to inflation in Portugal," reminds Filipe Garcia, IMF economist, pointing out that "investors buying national public debt, including European Central Bank, allows them to issue at low yields." .errordiv { padding:10px; margin:10px; border: 1px solid #5555;color: #000000;background-color: #f8f8f8; width:500px; }#advanced_iframe {visibility:visible;opacity:1;vertical-align:top;}.ai-info-bottom-iframe { position: fixed; z-index: 10000; bottom:0; left: 0; margin: 0px; text-align: center; width: 100%; background-color: #ff9999; padding-left: 5px;padding-bottom: 5px; border-top: 1px solid #aa } a.ai-bold {font-weight: bold;}#ai-layer-div-advanced_iframe p {height:100%;margin:0;padding:0} powered by Advanced iFrame free. Get the Pro version on CodeCanyon. Stocks are the highest-yielding asset over the long term The analysis by Elroy Dimson, Paul Marsh and Mike Staunton clearly shows that government bonds are far from being a solution for those who want to invest in the long term. But it doesn't stop there. It also reveals that Portugal is one of the countries where investing in stocks pays off more than investing in government bonds. If, on the one hand, government bonds continuously prove to be a bad solution for investors' portfolios, shares are continuously the most profitable assets to invest in over the long term: if, over the last 123 years, bonds and Treasury Bills have generated losses for investors' portfolios, shares have offered an average annual real return of 3.7%. In practice, this means that while investors in national bonds saw their savings wither away between 1900 and 2022, investors in equities doubled their investment every 20 years. And this happened even though the Portuguese stock market was the most volatile among the 21 analyzed. According to calculations by Elroy Dimson, Paul Marsh and Mike Staunton, Portuguese stocks had an average annual volatility of 33.5%, about twice as much as the other stock markets. "Portugal, Germany Austria, Finland, Japan and Italy "were the countries most seriously affected by the depredations of war, civil strife and inflation" over the past 123 years, the academics note in the "Credit Suisse Global Investment Returns Yearbook 2023," published Thursday. This reality is not exclusive to Portugal. Stocks have outperformed bonds and short-term debt securities in every market. Since 1900, world stocks have outperformed short-term debt securities by 4.6% per year and by 3.3% for bonds. And this dynamic does not change by reducing the investment period. In Portugal, for example, even shortening the investment period to the last 20 years (from 2003 to 2022), shares have also proven to be the most profitable asset. While Treasury Bills continued to show a negative average annual real return (-0.9% per year) and Treasury bonds yielded 2.6% per year, shares appreciated 3.3% per year. It may even seem like a small difference between the gains offered by stocks and Treasury bonds over this period, but on a €1,000 investment, the difference of 70 basis points per year translates into a €225 difference at the end of 20 years, with stocks generating gains 14% above what was offered by Treasury Bills. Source: ECO and Credit Suisse Global Investment Returns Yearbook 2023. Luís Leitão