Bonds vs. Stocks
This is my inaugural post for my new investing diary. I've been keeping this diary in a text file on my hard drive, but it was getting rather long and unruly. I thought it might be better organized in a private blog. Anyway, here it is.
So I was playing around with the perfcharts on stockcharts.com and I discovered something startling. Bond returns have beaten the S&P 500 since the height of the dot com bubble in the year 2000. That's 18 years! Now, I don't know if that includes dividends, but nevertheless, I find that statistic astonishing. The perfchart for a diversified bond fund shows a return since 2000 of approximately 85%. That translates to approximately 3.5% a year, not adjusted for inflation; while the return for stocks was even less.
Now, many will argue that we are at the height of a current bond bubble and that bond out-performance is not likely to last. But many would have made that same argument years ago. I also expected bonds to tank a long time ago. And yet, here we are. And stocks themselves have pretty high valuations at present. Honestly, I expect that stocks performance will overtake bond performance soon, but we shall see. I expect it will depend on the timing of the next recession. The recent tax cuts and the huge growth in Government deficits, which we are about to get, should be stimulative for the economy and the market, at least, in the short run. Then the Fed may be forced to shut the party down.
David Merkel, at Aleph Blog, writes that stocks are again today priced to deliver 3.48% a year, over the next 10 years, not adjusted for inflation. Although valuation is not very useful for market timing, Mr. Merkel reminds us that bonds are an alternative.
So I was playing around with the perfcharts on stockcharts.com and I discovered something startling. Bond returns have beaten the S&P 500 since the height of the dot com bubble in the year 2000. That's 18 years! Now, I don't know if that includes dividends, but nevertheless, I find that statistic astonishing. The perfchart for a diversified bond fund shows a return since 2000 of approximately 85%. That translates to approximately 3.5% a year, not adjusted for inflation; while the return for stocks was even less.
Now, many will argue that we are at the height of a current bond bubble and that bond out-performance is not likely to last. But many would have made that same argument years ago. I also expected bonds to tank a long time ago. And yet, here we are. And stocks themselves have pretty high valuations at present. Honestly, I expect that stocks performance will overtake bond performance soon, but we shall see. I expect it will depend on the timing of the next recession. The recent tax cuts and the huge growth in Government deficits, which we are about to get, should be stimulative for the economy and the market, at least, in the short run. Then the Fed may be forced to shut the party down.
David Merkel, at Aleph Blog, writes that stocks are again today priced to deliver 3.48% a year, over the next 10 years, not adjusted for inflation. Although valuation is not very useful for market timing, Mr. Merkel reminds us that bonds are an alternative.
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