According to Rob Arnott’s recent article to be published in the Journal of Indexes, bonds outperformed stocks as an asset class from 1968 through today. (You can read a condensed version of the article here.) That’s interesting news for those of us who have always been skeptical of the stock hounds. Dr. Jeremy Siegel said in his book Stocks for the Long Run that stocks reliably outperform bonds over a sufficiently long time horizon and so, Siegel argues, you really shouldn’t bother with bonds at all.
I was critical of Dr. Siegel’s advice in my book because, along with bonds, he has a long history of being critical of gold investors. For Siegel, and most conventional investment professionals, they have but one tool in their tool box; for them, it’s always a good time to invest in stocks and never a good time to be invested in bonds or gold. I’m always pleased to see when my criticism of an idea was well placed, and I so I find Rob Arnott’s article rather vindicating. Bonds outperformed stocks over the last fourty years, which begs the question of exactly how long a time horizon you need to be invested for Dr. Siegel’s advice to be holding true. For most people, fourty years is longer than their investment time horizon.
This forty year time span wasn’t actually the longest time period where bonds outperformed stocks. Going back all the way to 1802, there was a 68 year period (from 1803 to to 1871) where bonds also outperformed stocks. What’s even worse news for the stock hounds is that the news is just going to get worse from here. Continue reading Bonds Outperform Stocks Over Last 40 Years