What Was the Best Portfolio Over the Last 50 Years?

Since 1972, various asset classes have experienced a range of outcomes, including bull markets, bear markets, recessions, inflationary periods, and more. Consequently, the returns of these asset classes have varied significantly. The data shows that gold had the most winning years (13 out of 54), with a roughly 1 in 4 chance of being the top-performing asset each year.

Conversely, commodities and gold were tied for the lowest return in a given year, each having 11 years with the lowest return. The S&P 500 showed the best overall return, where a $1 investment in 1972 would have grown to $35.90 in real terms by 2025. Conversely, commodities had a negative real return during this period, shrinking to $0.42 by 2025.

Gold was the most volatile asset, with its best year being a +106% in 1979 and its worst year being -37.6% in 1981. It had the highest annual standard deviation at 24.7%. On the other hand, 3-month Treasury bills had the least volatility, similar to cash, but with lower long-term growth (a $1 investment in 1972 would have only grown to $1.14 in real terms by 2025).

Gold is considered the best inflation hedge, with its average annual return being 5.6 percentage points higher during periods of high inflation compared to periods of low inflation. However, its median return was 7.7 percentage points lower during high inflation periods, indicating that its inflation hedge capability is based on a few outlier up years that may not repeat in the future.

The optimal portfolio based on risk-adjusted returns (Sharpe Ratio) from 1972-2025 consists of 36% U.S. homes, 27% S&P 500, 18% gold, 16% 10-year treasuries, and 3% REITs. This allocation was chosen due to U.S. homes being less volatile while still providing good returns, and gold being an effective inflation hedge.