“Jeremy Siegle’s data shows that, after inflation, from 1802 through 1870 stocks gained 7% per year, bonds 4.8%, and cash 5.1%. But Elroy Dimson and his colleagues at London Business School estimate that the pre-1871 stock returns are overstated by at least two percentage points per year. In the real world. . .stocks did no better than cash and bonds – and perhaps a bit worse. Anyone who claims that the long-term record “proves” that stocks are guaranteed to outperform bonds or cash is an ignoramus. “
-The Intelligent Investor, Revised Edition – Benjamin Graham with Jason Zweig
The 1870’s was a long time ago, and the capital markets have evolved significantly, however, many similar statistics have been published post 1932 to present. How has your stock portfolio performed lately, or over the past 10 years? Would your portfolio have performed better with a greater allocation of bonds?
Fixed income should be a part of most investment portfolios, irrespective of what the folks on TV may say. Conservatively speaking, Vanguard founder, John Bogle advocates that one’s portfolio include fixed income in a percentage that corresponds with one’s age, i.e. if you’re 50 years old, Bogle advocates having 50% of investments in fixed income securities, the balance invested in other asset classes. Such a ratio can be debated, but many financial advisers think this is prudent for the conservative investor.
The fact of the matter is that purely advocating a preference for equities over fixed income based on the reported historical returns of equities, greed, or bad financial advice may limit one from meeting or exceeding the returns of major market indexes. Despite anyone’s preference for equities, all should keep an open mind. I advocate fixed income as a complement to any portfolio.
