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Commentary

Are Bonds Going to Outperform Stocks Over the Long Run?

Some argue that investors should allocate entirely to bonds, which they think will beat stocks over the long run. We're skeptical.

Given the poor performance of stocks over the past year and the past decade, there has been ample discussion about the relative performance of stocks versus bonds. Some even argue that investors should allocate entirely to bonds, not only because bonds are the safer investments, but because they believe bonds will outperform stocks over the long run. In other words, if bonds can deliver higher returns with less risk, why bother with stocks?

Table 1 below shows the performance of the S&P 500 and Intermediate-Term and Long-Term Government Bonds over various time periods. Not only have the average annual stock returns been poor over the last 10 years, but relative to bonds, stock returns look mediocre over the last 20, 30, and even 40 years.

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