Expert commentary on the long-term performance of Swiss equities and bonds

This solid return from Swiss equities is even more impressive when looking at set holding periods. For example, our analysis shows that an investor who held Swiss equities for a five-year period would have seen a positive return in 85 of the last 99 calendar years. This successful ‘hit ratio’ rises to 96 out of 99 for investors holding Swiss equities over a 10-year period, while there are no examples of a negative return from Swiss equities held for 14 years. Our analysis shows that an investment of CHF 1,000 made in 1926 would have grown to CHF 1.48 million by the end of 2024 (or close to CHF 1 million if one assumes various portfolio and brokerage costs).

For investors who prefer a less volatile return profile, our analysis shows that a balanced Swiss portfolio (60% equities/40% bonds) has provided an average annual return of 6.6% since 1926. There are no examples of investors suffering a negative return from such a blended portfolio if held for 10 years or more.

This detailed study of the performance of Swiss assets supports a key tenet of Pictet’s investment philosophy, namely our belief that a longer-term investment strategy provides better returns than attempting to tactically ‘time the market’. A balanced portfolio of Swiss equities and Swiss bonds should provide investors with limited risk tolerance with solid long-term returns, while smoothing out occasional periods of negative performance.

Swiss bonds: decent, but lower, returns in 2024

In 2024, weaker growth prospects and significant disinflation drove Swiss interest rates lower. Once again, Swiss bonds (as represented by the Swiss Bond AAA -BBB Total Return Index) outperformed their peers, posting a robust nominal return of 5.3% (in CHF), albeit down from 7.4% in 2023. These two consecutive years of positive returns contrast with 2022, when Swiss bonds recorded a nominal return of -12.1%, their worst performance on record. Taking inflation into account, the return was 4.7% in 2024, close to the 70th percentile of real returns since 1926.

Looking ahead, downward pressure on Swiss interest rates is expected to continue. Price pressures in Switzerland are anticipated to stay very low, with inflation below 1.0% throughout 2025. With the Swiss National Bank (SNB) set to continue cutting rates in 2025, its main policy rate could be zero at year’s end.

There is even a chance that the policy rate could fall below zero, especially if other central banks, such as the European Central Bank, were to ease much further their own monetary policies. Indeed, markets are seeing an increasing probability of negative SNB policy rates. However, while interest rates remain the SNB’s primary policy tool, foreign exchange intervention could serve as an alternative means of countering the threat posed by a strong Swiss franc.

Swiss equities: the long term value of patience and perseverance

The Swiss Performance Index (SPI) returned 6.2% (in CHF ) in 2024, in line with the previous year’s 6.1% but well shy of the long-term geometric average of 7.7% since 1926. Chart 2, showing average annual returns for Swiss equities (SPI index) between 2009 and 2024, is an extract from a much larger series that can be downloaded here.

The last row of the extract shows annualised CHF returns up to the end of 2024 for different starting years. If one focuses on holding periods ranging from 2009 to 2024, the average return posted by Swiss equities is not far from the long-term average of 7.7% achieved since 1926. Returns for more recent holding periods are somewhat skewed by the poor performance of equities in 2022.

A drawdown in equities is always stressful. However, these numbers show that one needs to consider the capacity of equities to recover after a sell-off. Smoothed over a long time period, the impact of bear markets tends to fade. An investor with a five year time horizon would have experienced a negative total return on Swiss equities 14 times in the 99 years between 1926 and 2024. Those 14 occurrences are mainly associated with three major market events: the Wall Street Crash of 1929, the bursting of the ‘dot-com’ bubble in 2001 and the global financial crisis of 2008. But investors with a 10-year horizon would have suffered a negative return on their initial investment in only three different years since 1926, all linked to the Crash in 1929. And our analysis suggests that since 1926, no one who invested in Swiss equities for at least 14 years would have experienced a loss on their initial investment (chart 3 illustrates the returns for investments in Swiss equities held for 15 years). This is reduced to 10 years for a balanced 60/40 Swiss portfolio (60% Swiss equities, 40% Swiss bonds). In short, our analysis shows that a disciplined, patient approach to equity investing is the best response to the old adage that “you can’t time the market” and that investors can build up their portfolio’s resilience through a buy-and-hold approach.

Another year closer to recovering from the 2022 drawdown

With figures going back to 1926, we now have almost a century’s worth of data on annual returns.

A good way to illustrate the ‘magic’ of compounding is to track the total returns from CHF 1,000 invested at the end of 1925 (assuming that dividends are reinvested and no money is withdrawn). Our analysis shows that the initial CHF 1,000 would have grown to CHF 1.48 million 99 years later. Of course, this figure is too good to be true: we need to consider various costs (brokerage fees, stamp duties, cost of portfolio rebalancing, etc.). We therefore deduct 50 basis points from our calculations of annual equity returns since 1926. This gives us a cumulative total return on the initial CHF 1,000 investment of CHF 926,351 between 1926 and 2024. To reach a 100-year return of CHF 1 million after costs would require a return of 8% over the next year, close to the long-term average. Patience remains a virtue; as returns compound over time, an investor’s time horizon can make all the difference.

The study tells a different story for bonds. On the one hand, risk indicators look less forbidding: Swiss bonds show an annualised standard deviation (a measure of volatility) of 4% compared with 20% for Swiss equities, while the maximum drawdown (the maximum potential loss from buying at the top and selling at the bottom of the market) is also lower (12% for Swiss bonds in 2022 vs 34% for Swiss equities in 2008).

However, while they fared relatively better than equities in 2022 and 2023, the average annual return offered by Swiss bonds is around half that earned on Swiss equities since 1926 – 4.0% versus 7.7% (in CHF ). In short, while bonds, despite the 2022 mishap, have proved their worth in mitigating portfolio risk, equities remain the investment of choice over the long term (chart 4). Put another way, a reasonable long-term investment horizon combined with a certain risk tolerance justify a significant allocation to equities.

Equities offer more attractive real long-term returns than bonds

As previously noted, the average annualised return (geometric mean) for Swiss equities and bonds (in CHF) over the past 99 years is 7.7% and 4.0% respectively in nominal terms. Due to the sell-off in both asset classes in 2022, these figures are somewhat lower than in July 1998, when we first published our long-term return analysis. The average annual return over the period from 1926 to 1998 was 8.6% for equities and 4.6% for bonds.

The resurgence of inflation after Covid-19 makes that it more important than ever to pay attention to real returns (which take into account the erosion in the value of money). In real terms, the return from Swiss equities averaged 5.6% between 1926 and 2024, only slightly down from the 6.0% figure for the period between 1926 and 1998. The variation is smaller for Swiss bonds, which made an average annualised 10-year real return of 2.1% up to the end of 2024, the same return as at the end of 1998. Again, these figures show that equities provide better real returns than bonds over the long run.

A balanced approach performed slightly better in real terms in 2024

The 60/40 Swiss portfolio fell by 14.7% in 2022, marking its fourthworst year since 1926. However, performance has bounced back since,with the same portfolio delivering nominal returns of 6.6% in 2023 and 5.8% in 2024. An additional 3.9% return is required to fully offset the negative performance in 2022 (see chart 4). While the equity contribution has remained relatively stable at around 3.7% over the past two years, Swiss bonds contribution declined from 2.9% in 2023 to 2.1% in 2024 (see chart 5), largely due to theirunderperformance in 2024 as the fall in rates slowed.

In real terms, a balanced 60/40 Swiss portfolio performed better in 2024, benefiting from a significant decrease in inflation compared to 2023, with a return above the geometric average over the past 99 years.

The purpose of a balanced allocation – one that combines equities and bonds – is to capture the upside potential of equities and to benefit from the protection offered by government bonds during equity downturns. Since 1926, the SPI index has had negative annual returns in 30 individual years. In 26 of those years, the Swiss bond index posted positive returns, cushioning the equity losses for a 60/40 portfolio. Historically, the Swiss 60/40 portfolio has delivered an annualised nominal return of 6.6%. Investors who have held a Swiss balanced portfolio for at least 10 years have not experienced any loss on their initial investment over the past century, according to our analysis.

Conclusion

Following their negative performance in 2022, Swiss equities and bonds have bounced back in each of the past two years, reverting to their long-term trend of positive returns. Average annual total returns (in nominal terms) for Swiss equities since 1926 stands at 7.7% (in CHF) and at 4.0% for Swiss government bonds.

While short-term returns in any asset class can be volatile, our analysis shows that long-term investments in Swiss equities and bonds have reliably provided long-term positive returns. Our analysis using data since 1926 shows that a five-year investment in Swiss equities has produced a positive total return 86% of the time; this rises to 97% for 10-year investments. There are no examples of a negative returns for investors holding Swiss equities for a 14-year period.

For investors with more limited risk tolerance, a blended 60/40 portfolio of Swiss equities and Swiss bonds has provided solid long-term returns of 6.6% per annum since 1926, while also smoothing out occasional periods of negative performance.

For illustrative purposes. Past performance shouldnot be taken as a guide to or guarantee of future performance. Performances and returns may increase ordecrease as a result of currency fluctuations.

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