The financial media is back at it.
A recent article in the Financial Times announced that “Anyone who started saving 40 years ago…has found that stocks have performed no better than bonds.”
The article also contains a graph that proudly displays over a 20-year span, from 1929-1949, bonds beat stocks.
Further, the article continues with opinions that stock investing is dead and gives examples of real investors damaged by this market. (We can’t dispute this last part, as many have been damaged by this down market. However, the article tells us nothing about the planning or investment strategy these people followed.)
Of course, the article offers no solutions.
First, let’s examine the claims.
Looking back at the data from February, 1969 through February, 2009, Long-Term Government bonds annualized 8.65% while the S&P 500 annualized 8.44%.
From January, 1929 through December, 1949, Long-Term Government bonds annualized 4.02% while the S&P 500 annualized 3.80%.
And there it is.
The data that proves bonds beat stocks over long periods of time.
Of course, it would have been nice if the Financial Times (or anyone, for that matter) told us in 1969 or 1929 this would happen. No one did.
And, who in the real world does this data apply to?
It only applies to those who invested all their money in stocks on the exact date in 1969 or 1929, and had to withdrawal their entire sum in February, 2009 or December, 1949. That is an unlikely scenario.
But that is beside the point. The real point is, anyone can make a case for anything using hindsight and data mining.
For instance, take the 1929 through 1949 period. How are the returns affected by simply moving the time period forward one year, from 1930 through 1950, and fully diversifying* the equity portfolio?
- Long-Term Bonds annualized return: 3.86%
- Fully diversified equity portfolio: 9.39%
And, what if we move the time period back one year in the 1969-2009 scenario, to 1968-2008?
- Long-Term Bonds annualized return: 8.34%
- Fully diversified equity portfolio: 11.10%
Simply moving the time period makes a big difference!
For you, the reader, these articles are pointless and will do nothing but scare you into inappropriate behavior.
The best move to make is to develop a financial plan with a trusted advisor, and implement the plan with a portfolio specifically targeted for your personal goals. Then, meet regularly with your advisor and adjust the plan and portfolio as needed.
And leave these articles to those who believe everything they read.
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* Diversified Portfolio:
Rebalance: Per 12 Months
Fama/French US Small Value Index (ex utilities): 25%
Fama/French US Large Value Index (ex utilities): 25%
Fama/French US Large Growth Index (ex utilities): 25%
Fama/French US Small Growth Index (ex utilities): 25%
Currency: USD
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