Bonds vs Stocks.

bonds stocks

This is straight from J.Mauldin’s outside the box letter. It deserves maximum exposure as it contradicts most peoples perceptions and by no small amount. If you speak to your broker, or, for that matter anyone in the know, and asked what is better? Bonds or Stocks? The answer invariable is that , of course, stocks do much better than bonds, even if for the past ten years feeble apologies are made for the lack of return. Just suggesting, from time to time, I have done exactly that, that bonds or, if you prefer GICs here in Canada, actually do just as well is usually dismissed out of hand as complete rubbish.

Well these Bianco and Haver guys have conducted interesting study. They did take the best possible period from 1980 to now to do so, but this 30+ year period is also the time when most people alive today would have “built” their wealth. It is also the time period in which  “investing” went mainstream with all the mutual funds and efficient-market theories and other nonsense.   They compared US government long bonds with the S&P 500 on a total return basis. For the long bond they used the 25 year zero-coupon, renewed every year to maintain the 25 year duration. The long bond managed to return 19,75 % compounded  annually against the S&P 11.5 %. That is not just better, but better by a factor of 9.2 times!!! So much for well embedded , but completely false, notions. The other great myth , of course, is that your broker has your interests in mind, first and foremost.

See also G Shillings’   The age of deleveraging.