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Father Fred

Uk Property Vs Gilts Vs Equities 1920-1997

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UK Property vs Gilts vs Equities 1920-1997

------------------------------ Prop----Gilt----Eq

Annualised Growth Rate----8.8----6.2----13

Average -------------------9.4----7.1----15.8

SDEV-------------------------9.9----13.6----25.9

Correlation-------------------1 ----0.2----0.25

There appears to be very little long term property price data, and the above is from one of the few bits of research. Property prices are commercial (but are generally reasonably closely linked to residential (though I suspect residential is less likely to become outdated and may be slightly higher). Figures come from records for pension funds, insurers etc. Someone has gone through their paper records and built and index, combining it with more reliable commercial property figures as the IPD index came out.

Notes: Property is based on valuations rather than prices with Gilts and equities, therefore there is a natural “smoothing tendancy”. In reality the Standard deviation on property should probably be double the above – 18 or somewhere between Gilts and equities.

I think the figures are nominal not real.

There is a slight tendancy upwards in the equity figures as companies that fail drop out of indices and are replaced by better companies.

Conclusions: Property is a pretty good investment because –

It is not correlated to gilts or equities therefore good in helping get a balanced portfolio.

It outperforms gilts by 2.5% pa, not a bad return for an asset that has the benefit of never going bust (the tenant might, but if you are insured then you’re very unlucky to lose it all).

Equities are a far better wealth generator.

Finally, the above data is useful to help with long term planning, but maximising returns by playing the cycles is vital if you really want to get better returns.

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[Conclusions: Property is a pretty good investment because –

It is not correlated to gilts or equities therefore good in helping get a balanced portfolio.

It outperforms gilts by 2.5% pa, not a bad return for an asset that has the benefit of never going bust (the tenant might, but if you are insured then you’re very unlucky to lose it all).

Equities are a far better wealth generator.

Finally, the above data is useful to help with long term planning, but maximising returns by playing the cycles is vital if you really want to get better returns.

The overall picture feels right and your conclusion about cycles is surely correct. Property and equities are the best bets for most of the time but are disasterous in the downturn part of long cycles - ie the bit we are in now, according to many advocates of Kondratief and Elliot wave analysis.

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Yes I would say that cyclicaly property and equities are now priced very highly, but the returns from gilts look pretty poor too, property and equity prices should be correlated due to propery price correlation with aggregate demand ( recessions).

I would be overweight gilts now even though historically this is a bad move.

property and Equities. = good for inflation.

gilts = good for deflation.

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Yes I would say that cyclicaly property and equities are now priced very highly, but the returns from gilts look pretty poor too, property and equity prices should be correlated due to propery price correlation with aggregate demand ( recessions).

I would be overweight gilts now even though historically this is a bad move.

property and Equities. = good for inflation.

gilts = good for deflation.

I can see the logic that property and equities should be correlated but they're not...

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You should allocate your money into all of the above and cash based on yeild I would think

portfolio theory. it seems 60% equities, 20% gilts, 20% property is a good balance between relatively high return and relatively low risk. (returns betwen property and equities while having a lower risk than property).

anyone care to tell me how one can combine portfolio theory and playing the cycles to maximum effect?

Edited by Father Fred

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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