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most people tell you conventional wisdom says and it's not true that bonds are safer than stocks that's only true if you're thinking of shortterm if you're investing in stocks and you're thinking of shortterm you might as well be thinking of Las Vegas the fact is stocks shouldn't be used as short-term bets stocks are about a longer term vision of capturing the benefits of capitalism as it morphs its way through problems to a better material outcome for people globally pretty simple concept a concept not so readily embraced Always by everyone if we look historically a very long history of bond returns parallel very long history of stock returns and we can see that the longer you look at rolling time periods the more it becomes true that stocks are safer than bonds now let me step back back from that for a second if you look at rolling 20-year periods because you're 50 years old and you expect to live at least until you're 70 it becomes overwhelming if you actually thought you'd live until you were 80 and look at rolling 30-year periods it's absolute if you look instead just at rolling three-year periods it's mostly true that stocks are less risky than bonds what people forget is and they forget it this year is that when you have Rising inflation bond prices tend to fall reducing the total return and making the total return on bonds negative which is what's happened so far this year this year stocks have gone down more but what people Miss is that if inflation is not somewhat transitory and Remains the inflation numbers that we're seeing now are very high relative to a 3% US Government 10year Bond rate and to the extent that's true you would expect to see bond pric is going up excuse me bond prices falling interest rates going up and as that would happen sequentially negative Bond returns and if you look at the longer term history let's say from 1925 to 1980 you had overwhelmingly most years where stocks Rose 2/3 plus of the time while most years bonds generated negative returns and particularly negative returns inflation adjusted that inflation effect directly impacting bond prices is one where in a period where rates are going up because inflation is pulling them up does not get incorporated into a positive impact for bonds the way it does for stocks because stocks reflect businesses morphing to adapt to the changes that they are confronted with over time albeit not necessarily immediately and with interim disruptions that you could otherwise call volatility so I want to reiterate in the short term bonds very short term bonds are safer than stocks but in the longer term as you move out three 5 10 15 20 30y year Rolling periods stocks get increasingly safer than bonds starting with three-year Returns on average and as that becomes true you say to yourself how long are you holding these Investments for and why what's your investment time Horizon and I think very few people other than their jitteriness actually have short-term time Horizons almost everyone that I talk to when I ask them what's the primary purpose of your money what are you investing for why you doing it in the first place they're thinking of their longer term future the most common phrase I ever hear is well the purpose of my money is to take care of me and my spouse the rest of our lives maybe leave some money to offspring maybe leave some money to to charity uh we've got some other interests that we want but it's to take care of ourselves over the longer term and then you ask well so how how long do you think you're going to live and they tell you and you know the reality is most people live a little longer than they think they're going to obviously not everyone but most people do people who get up into the ages of 50 and 60 and 70 tend to live longer than they think they will uh longer than they thought they would if they approached those ages partially because medical improvements keep helping them live longer but in all of that if you have a longer term time Horizon and you've got a longer term investment program stocks actually end up being more consistent generating higher returns bonds actually end up being riskier
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