Stocks, Bonds, and Long-Term Risk
Across the developed markets, stocks have been safer investments than government bonds as the time horizon lengthens.
Reviewing the Numbers
Last week's column discussed a theoretical reason, offered by Nobel Laureate Paul Samuelson, as to why stocks might not become relatively safer over time. Most people believe that stocks are too risky to own for short periods, such as one year, but are prudent investments for time horizons that stretch over decades. Samuelson says otherwise. (His argument does not convince me, but perhaps it convinces you.)
This column has a simpler topic: the empirical results. Regardless of what one thinks of Samuelson's logic, or of any other claim that time horizon does not matter for asset allocation, there's no question about the track record. Across the developed markets, stocks have been safer investments than government bonds as the time horizon lengthens--not just for a few countries, or a few decades, but for 19 markets spanning 110 years.