The coronavirus crisis has worried many investors. But the stock market has recovered significantly since the collapse of March 2020.
“It is definitely possible that stock market rates will experience another collapse in the coming months or years,” says moneyland.ch CEO Benjamin Manz. It is also possible that Swiss inflation rates will climb in the future.
Historical performance does not provide a sure prediction of future performance, but it does provide a good reference point. For this reason, moneyland.ch conducted an analysis of average returns on stock investments based on data from Bank Pictet dating back to 1926. The analysis also included SIX data for Swiss Market Index (SMI) performance dating back to 1997 and Swiss Performance Index (SPI) performance dating back to 1988. In order to make comparison possible, the analysis used the total return versions of all indexes. Total return indexes are based on the assumption that dividends are reinvested.
The moneyland.ch historical interest and return calculator provided the basis for the analysis. This calculator lets you perform numerous simulations with or without accounting for inflation. The inflation-adjusted evaluations for any year account for inflation – increases in the cost of goods and services – in Switzerland in that year.
The results of the moneyland.ch analysis show that since 1926, Swiss stocks have delivered an inflation-adjusted return of nearly 6% per year. That means the average performance of the stock market is significantly higher than the inflation-adjusted average interest rate of bank accounts. The average real interest rate over the same period is just over 0% per year.
There have been years in which the stock market collapsed considerably. Stock market growth rates were lower than inflation rates in around one out of three years over the analyzed term.
“But up until now, the Swiss stock market has always recovered and beaten inflation over the long term. It is fairly likely that this trend will continue over the coming decades,” believes moneyland.ch analyst Silven Wehrli.
Swiss stock performance since 1926 without inflation
Between 1926 and 2019, the average return on Swiss stocks as per the Pictet index was 7.9% per year.
Accounting for return accrual, the total returns over that period were a high 123,328% (without accounting for investment costs). At that rate, an investment of 1000 Swiss francs in Pictet-indexed stocks in 1926 would have grown to 1.2 million francs by the end of 2019.
1985 was the year that saw the highest Swiss stock market performance, with growth of 61.4% over that year. The worst-performing year was 2008, over which the Swiss stock market fell by -34%.
Swiss stock performance since 1926 with inflation
Performance is lower when inflation is accounted for, but inflation-adjusted performance still averaged 5.8% per year since 1926.
Accounting for inflation, the worst-performing Swiss stock market year was 1974, with an inflation-adjusted performance of -37.8%.
What is also interesting is that in 32 of the 94 years between 1926 and 2019 the Swiss stock market recorded negative inflation-adjusted annual performance. In 62 of the years included in the anaylsis, the Swiss stock market recorded positive inflation-adjusted performance.
Swiss stock performance since 1980
Between 1980 and 2019, Swiss stocks tracked by the Pictet index saw average growth of 9% per year. When return accrual is accounted for, total performance over that period was more than 3000%. At that rate, a 1000-franc investment in 1980 would have grown to more than 30 times its original value by 2019.
Swiss stock performance since 2000
Between 2000 and 2019, the average return on Swiss stocks tracked by the Pictet index was “only” 4.8% per year. The total performance over that full period – without accounting for inflation – was 156.8%. At that rate, an investment of 1000 francs in 2000 would have grown to 2600 francs by 2019.
Swiss stocks also faced long dry spells
Historically, the average performance of Swiss stocks has always recovered and delivered good returns. However, there have also been long periods over which the stock market continuously delivered negative performance.
Depending on the period in question, investors may have had to wait many years for stocks to recover their value.
For example, people who invested in 1929 – the year in which the US stock market crashed – experienced 12 years of -15% performance (non-inflation-adjusted) until 1940.
Similarly, stocks bought at the beginning of 1973 – the year in which the oil crisis began – were still worth -5.6% less than their original 1973 price 9 years later at the end of 1981.
Combined SPI-tracked stocks purchased at the start of 2001 following the burst of the dot-com bubble still had not recovered -4.9% of their value by 2011 – 11 years later. If you look at performance over irregular timeframes rather than calendar years, negative performance can be even more extreme.
“It is important that the money which you invest in stocks is money that you can do without. In the worst case, it can take more than 10 years for stocks to recover their value and deliver a gain over the price you paid,” advises Benjamin Manz.
Development of Swiss SMI stocks
The Swiss Market Index (SMI) is the most important Swiss stock index. It tracks the performance of the 20 biggest listed Swiss stocks.
Between 1997 and 2019, the SMI grew by an average of 7% per year. By that rate, an investment of 1000 francs in SMI stocks in 1997 would have grown to 4744 francs by the end of 2019 (without accounting for investment costs). The best-performing year was 1997, with 61% growth. The worst-performing year was 2008, with -33% growth.
Performance is somewhat lower when inflation is accounted for, with an average inflation-adjusted performance of 6.5% per year.
Development of Swiss SPI stocks
The Swiss Performance Index (SPI) tracks all listed Swiss stocks.
Between 1988 and 2019, the SPI grew by 9.2% per year, on average. At that rate, a 1000-franc investment in SPI-tracked stocks in 1988 would have grown to 16,685 francs by the end of 2019 (without accounting for investment costs). The best-performing year was 1997 with 55.2% growth. The worst-performing year was 2008, with negative performance of -34%.
SPI performance is somewhat poorer when inflation is accounted for. Inflation-adjusted SPI performance between 1988 and 2019 averaged 8% per year.
SMI and SPI performance compared
In contrast to the SMI which tracks just 20 stocks, the SPI tracks the stocks of more than 200 Swiss companies and so is much more diversified. This difference is visible in index performance.
Between 1997 and 2019 – the period for which both SMI and SPI records are available – the SMI delivered average annual growth of 7% per year while the SPI grew by an average of 7.4% per year (both without accounting for inflation).
However, the SMI outperformed the SPI in the years 1997, 1998, 2001, 2005, 2008, 2011, 2012 and 2018.
Still: “The SPI is more diversified and provides a lower-risk investment than the SMI,” states Silvan Wehrli of moneyland.ch.
How can you invest in stocks?
Buying shares in stocks directly is the easiest way to invest. Important: Investment fees vary broadly between banks and brokers. Comparing brokers before choosing one to invest is recommended because using the wrong broker for your trading needs can result in high investment costs.
The interactive trading platform comparison on moneyland.ch accounts for both brokerage fees and custodial fees. You can find useful tips for stock trading here.
Investing in entire indexes rather than individual stocks is recommended. The more different companies you invest in, the less dependent your overall investment portfolio is on the performance of any one company. Buying shares in exchange traded funds (ETFs) which, in turn, invest in all stocks tracked by the SMI or SPI indexes, is a simple way to invest in indexes. ETFs charge ongoing fees which detract from returns. However, replicating a full index by buying shares in all the tracked stocks yourself requires a large amount of investment capital and involvement on your part. You can find useful tips for investing in ETFs here.
Digital wealth managers, sometimes called robo advisors, are another alternative. Robo advisors are significantly cheaper than conventional wealth management services and typically make use of affordable ETFs. The advantage of robo advisors is that you do not have to put together and track your investment portfolio or buy or sell stocks or ETFs yourself. In exchange for having the robo advisor service invest your money for you, you pay wealth management fees. This added cost means that using a robo advisor is normally more expensive than investing in ETFs yourself.
More on this topic:
Compare investment costs at Swiss banks now
Tips for investing in stocks
Historical stock performance and bank interest calculator
