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The American historian David McCullough once said, “History is a guide to navigation in perilous times.” That observation feels particularly timely at the moment. In periods of economic and geopolitical uncertainty it is easy to lose perspective on the long-term investment horizon.

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The latest edition of the Global Investment Returns Yearbook produced by UBS, with its database stretching back to 1900, provides a rich source of information that helps investors filter out short-term noise and learn from the past. In many ways it acts like the Wisden Cricketers’ Almanack — published every year and packed with statistics.

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The Yearbook examines returns from both equities and bonds over this long period and compares them in both nominal and “real” terms, the latter adjusting for inflation. Inflation has a significant impact when assessing investment returns and is therefore a central consideration when building portfolios. For long-term investors — particularly those relying on income — the real, after-inflation return is ultimately the most meaningful measure.

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Greg Peters of the global asset manager Prudential Financial recently noted that equity and bond investors often approach markets from different perspectives. Equity investors play for the upside; whereas bond investors are typically more concerned with limiting downside risk and just want to be sure to be paid back. This distinction highlights the role of diversification and an investor’s tolerance for volatility. Investors with a lower tolerance for market swings tend to hold a larger allocation to bonds, while those who can accept the inevitable ups and downs of equity markets may benefit from a higher exposure to stocks. The Yearbook has consistently reinforced this principle over many years.

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That said, it is possible to be over-diversified, which may dilute potential returns, just as it is possible to be insufficiently diversified. The latter risk is particularly relevant today, given that a small number of very large companies dominate the US equity market. Investors may therefore be less diversified than they realise.

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What the statistics do suggest, however, is that a balanced mix of equities and bonds can help reduce drawdowns — in other words, it can act as a brake on losses when markets fall.

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Since 1900 the global economy has changed dramatically. Today the United States accounts for roughly 62% of the world’s equity market, reflecting both strong long-term returns and a large number of seasoned equity offerings and IPOs. Of the companies listed in the US in 1900, around 80% of their value is now small or non-existent. At the start of the twentieth century the dominant sector was railroads; today it is technology.

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Despite these changes, the long-term data remain strikingly consistent. Equities have historically outperformed both bonds and inflation. Since 1900, equities have delivered average annual returns of 9.8% in nominal terms, or 6.6% after adjusting for inflation. Long-term government bonds returned 4.6% nominally and 1.6% in real terms.

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Looking across regions, developed markets have generally performed better than emerging markets over the full period since 1900. However, from around the 1960s onward, emerging market equities and bonds have produced stronger relative returns.

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Recent geopolitical events — including the continued war in Ukraine and the recent attacks on Iran — inevitably raise concerns for investors. While such events can have severe economic consequences, history suggests that economic shocks have typically had a more sustained impact on global equity markets than geopolitical events alone.

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Comments from James Scott-Hopkins, Founder of EXE Capital Management.

The views are those of the author only. The above does not constitute a recommendation to buy specific funds or assets and advice should be sought from your financial advisor as to the appropriateness of this in your portfolio. The value of investments can fall as well as rise. Past performance is no guarantee of future returns.

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