In 2024, interest rates remain at their highest level since 2007. This high-rate environment brings both opportunities and uncertainty. You might wonder, “With so many ways to earn on my savings, are equities still worth the risk?” Thankfully, decades of market data can help us answer that. The results might surprise you: avoiding equities may be more costly than you think.

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A Quick Look at Interest Rate History

If you grew up around the 2008 Great Recession, you’ve likely only known low interest rates. But historically, this is unusual. From 1973 to 2007, interest rates stayed above 4% more than 80% of the time. Rates dipped below 4% mainly after major financial shocks — like in the early ’90s, after the dot-com crash, and following the 2008 and 2020 crises.

Looking back over the last 50 years, we can compare how different saving and investing strategies performed during both high and low interest rate periods.

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What the Past Tells Us About Equities, Bonds, and Savings

While history can’t predict the future, it gives us perspective. Long-term data shows that equities have consistently outperformed bonds, and bonds outperformed high-yield savings. This pattern holds across various market conditions.

We analysed 50 years of data, from June 1973 to May 2023. In that time, equities delivered the highest returns, followed by bonds, then high-yield savings. This isn’t a coincidence — it reflects the basic principle that higher risk brings the potential for higher reward.

In our analysis:

• Equities used total U.S. market returns (including large- and small-cap stocks).

• Bonds used 5-year U.S. Treasury returns.

• High-yield savings used 1-month U.S. Treasury returns (a standard proxy for “risk-free” rates).

We used consistent data sources for all asset classes to keep comparisons fair.

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Why This Makes Sense
Investments with more volatility generally offer more return over time. In our case, high-yield savings were the lowest risk, bonds were medium risk, and equities carried the highest volatility. As expected, the return pattern followed this risk ladder.

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High vs. Low Interest Rate Periods — Do Returns Change?
We also looked at how stocks, bonds, and savings accounts performed in both high and low interest rate environments.

The result? Equities outperformed bonds in both cases. And bonds beat savings rates — again, in both high and low rate periods. The return margin stayed fairly consistent:

• Equities outperformed bonds by about 4%.

• Bonds outperformed high-yield savings by over 2%.

This shows that interest rate levels don’t significantly alter the value of long-term investing in equities.

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What Ignoring Equities Could Cost You
Over a 30-year period, skipping equities could cost you hundreds of thousands of euros. Even in high-rate environments, equities still outperformed bonds. However, higher returns come with more volatility. The question becomes: how much volatility are you willing to accept in exchange for more growth?

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Balancing Risk and Reward
Diversification, risk management, and goal-based planning are key. While short-term volatility and news headlines may tempt you to shift strategies, long-term discipline pays off. Aligning your investments with your personal goals and timelines is essential.

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Save and Invest Based on Your Financial Goals
Whether you’re saving for the near or long term, balancing cash, bonds, and equities is crucial. The level of risk you take should match the timing of your financial needs

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