The risk and reward of investing

We examine the risks and rewards of investing by constructing a comprehensive market portfolio valued at $150 trillion in global assets and spanning 1970–2022 at a monthly frequency. The monthly frequency allows for a more accurate estimate of investment risks compared to previous studies. Although the Sharpe ratio of the global market portfolio is not much higher than that of equities, it is much more stable over time. In addition, the drawdowns of the global market portfolio are less deep and shorter. When the market portfolio is expressed in currencies other than the U.S. dollar, risks of investing appear larger. • This is the first study into historical risks and rewards of the aggregate investor in global financial markets by studying monthly returns. • The breadth of asset classes in this study is unmatched and covers all accessible financial investments of investors around the world. • The stability of the Sharpe ratio over rolling 10-years periods is substantially greater for the market portfolio than for asset categories. • If we adjust the average returns by maximum drawdowns instead of volatility, the global market portfolio has the highest reward for risk. • Relative to monthly returns, annual returns tend to substantially underestimate the frequency and the size of drawdowns.