What happens if you left all of your investments in cash? Or fixed income? Or gold (which is, on a very rough basis, an index measuring investor panic and inflationary trends)? A well-balanced portfolio should have all three but what happens if a risk-adverse investors invested in the most secure of investment vehicles?

Jeremy Siegel compared the returns of stocks, bonds, bills, gold and cash from the period of 1802-2006 and found that a $1 invested in 1802 would yield the following real return (returns adjusted for inflation):

• Stocks: $756,163
• Bonds: $1,083
• Bills: $301
• Gold: $195
• Cash: $0.06

Unless there is medical innovation on the horizon, none of us will live for over 200 years so the comparison, while educational, is not that practical. The comparison also, obviously, omits the stock market slide that began in the recent past.

However, Siegel also breaks down annual stock market and government bond returns by smaller, more realistic periods. During the period of 1966-1981, which includes the 1970′s when the stock market went sideways (and, thus, analogous but not a strict comparison to the recent past), he looked at the total real return of stocks, gold and short and long term government bonds. The results are as follows:

• Stocks: -4.1%
• Gold: 8.8%
• Long term government bonds: -4.2%
• Short term government bonds: -0.2%

In other words, even in a down period, stocks outperform most other asset classes (remembering that gold can be seen as a sub-class of equities if one is investing in gold stocks and not bullion). In isolation, the comparison would suggest that one move to gold and short-term government bonds. However, the return of both asset classes trailed stock returns in periods prior to (1946-1965) and after (1982-1999) the above period studied.

A risk-adverse portfolio may let one weather some short term decline in the market but, for those with long investing horizons (20 years plus), at the expense of opportunity costs over the long term.