A very close friend sent me some graphs and comments and I think it is valuable to read it.
I would like to present you the longest chart I have on a stock market: The British stock market.
The first chart is the stock market index in nominal terms.
Before the 20th century, stocks were a different investment. They were judge to be risky and had to offer big dividend yields to compensate for the risk. Dividend yields on stocks were higher than bond yields. But at the time, money was linked to gold (most of the time).
In the 20th century, everything changed.
During WWI, the gold standard was abandoned to finance the war.
Different attempts to link money to gold were tried at different times and at different prices.
Finally, in 1971, the gold standard was totally abandoned.
Money became totally fiat.
With no more restriction, money could be printed and printed which lead to the accelerating destruction of its purchasing power (see 2nd chart).
If you take account of that, the performance of stocks over the long term (so in real terms) is quite different (see 3rd chart).
Now, in the last chart, I would like to show you how British stocks have performed against gold (see 4th chart). Here again, we have a totally different picture.
Some of you can say that I have to take in account the dividends received (if someone has the long datas with dividends, I would be glad to provide the information) but also we have to take in account some frictions like safe keeping feees, purchasing fees etc.)
There are times to own stocks, others to own gold…
Source : https://www.globalfinancialdata.com/
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