Stocks for the long run. How long is the long run, anyway?

bubblesmoney

see the first graph on the article

I came across this interesting article which really questions long held notions about stocks and bonds. I used to wonder a few years ago when someone playing in the big institutional league said that stocks were out and they were heavily into bonds. This was before the stock crash, they must be laughing all the way to the bank now.

Most observers, whether bond skeptics or advocates, would be shocked to learn that the 40-year excess return for stocks, relative to holding and rolling ordinary 20-year Treasury bonds, is not even zero.

Zero “risk premium”1? For 40 years? Who would have thought this possible?

:eek: it was shocking to see that bonds beat stocks over the last 41y. if one doesnt enter the stock cycle right then one can get screwed for life. guess it will be the same in any investment.

It’s hard to imagine that bonds could ever have outpaced stocks for 40 years, but there is precedent. Figure 1 shows the wealth of a stock investor, relative to a bond investor. From 1802 to February 2009, the line rises nearly 150-fold.3 This doesn’t mean that the stock investor profited 150-fold over the past 200 years. Stocks actually did far better than that, giving us about 4 million times our money in 207 years. But bonds gave us 27,000 times our money over the same span. So, the investor holding a broad U.S. stock market portfolio was 150 times wealthier than an investor holding U.S. bonds over this 207-year span. So far, so good.

That 150-fold relative wealth works out to a 2.5-percentage-point-per-year advantage for the stock market investor

read more on this link. the graph is from the same article.

purch

Perfectly true.

The 'cult' of Equity Investing will/has destroy many peoples long term wealth prospects.

My S.I.P.P. is fully invested in Fixed Interest and has been since I started it over a decade ago.

amcluesent

And don't forget the every government in the West is manipulating the pension rules to oblige trustees to buy gilts, which is handy as they've a shed-load to sell. Without institutional investors, the support for stocks will fall away.

IIRC even the Buffetologists have taken a big hair-cut with stock investing, so what hope is there for the rest of us!

Harry_Powell

purch wrote: »

Perfectly true.

The 'cult' of Equity Investing will/has destroy many peoples long term wealth prospects.

My S.I.P.P. is fully invested in Fixed Interest and has been since I started it over a decade ago.

Why are you using a SIPP if you're only investing in Fixed Interest Bonds? SIPPS are an expensive option, in comparison with other pension products and only seem to 'pay their way' if you use them to their fullest advantage (i.e. fixed interest, index linked, equity funds, individual company shares, cash and even commnercial property. Aren't you paying excessively for options you'll never use?

Also, shouldn't you have a balanced portfolio of shares, bonds, cash, etc? I'm sure if you compared someone right now who had high risk shares against someone who holds low risk bonds, then the bondsman would come out on top. If you compared them 18 months ago when the stock market was flying high, then the equity man would come out on top. If you then compared them both to someone who 'hedged' his bets with a proportionate mixed portfolio of fixed and index linked bonds, equity, cash, commercial property fund, safe equities and a small amount of money in more adventurous funds, I think you'd see that the 'middle ground' came out top.

Investing in a single asset class is never a good idea, be it equities, cash, bonds, property (funds or BTL). A balanced portfolio means that you offset losses in one asset class with gains in another.

Or so I keep reading on the investments boards

purch

Aren't you paying excessively for options you'll never use?

No

I cannot hold Bonds in any other Pension wrapper.

Also, shouldn't you have a balanced portfolio of shares, bonds, cash, etc?

Do you have the foggiest clue what my whole Investment portfolio consists of ??

Or so I keep reading on the investments boards

Listening to the 'snake oil salesmen' (IFA's) will cost you. I have heard loads who know all about the Investment rules and laws, but very few who have ant idea at all about the actual underlying Investments.

kennyboy66_2

Thanks for that Bubbles - if someone had told me that, I frankly wouldn't have believed it, even knowing that the stock market has performed dismally in the last 10 years.

The time frame also co-incides with a point where bond yields can't really go much lower, therefore bond prices can't really go much higher from here.
Of course the stock market could fall further or we could get serious deflation, but on balance I would expect equities to outperform gilts over the next 20 years.

There certainly is a "cult" of equity investing, but my gut feel is that the "risk premium" has not disappeared, which is why over the next 5 year I will continue lumping into equities.

Jonbvn

I think the important issue we have to remember with equities are the dividends. Don't several blue-chip shares pay dividends well in excess of bond rates?

The above notwithstanding, I do invest regularly in a bond "fund" which includes gilts and corporate bonds.

purch

on balance I would expect equities to outperform gilts over the next 20 years.

I would be shocked if they didn't in most periods.

But a sensibly thought out portfolio of Fixed Interest will hold it's own.

I have always been of the opinion that most Equities are for trading, and FI (along with a few well chosen high yielding stocks) for buy and hold.

I do invest regularly in a bond "fund"

Wouldn't touch one of those with...............!!!!!

Harry_Powell

purch wrote: »

Do you have the foggiest clue what my whole Investment portfolio consists of ??

I know that your entire SIPP pension consists of fixed interest bonds. You just said so.

Jonbvn

purch wrote: »

Wouldn't touch one of those with...............!!!!!

Please explain why?

purch

A Fund has no maturity.

Without a Fixed Maturity Bonds gain a significant amount of risk.