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I recently received the latest Ibbotson Yearbook in the mail the other day. If you’re not familiar with it, the book is a great source for long-term returns of different asset classes (click here for more info).
What I find interesting is that the spread between the returns of stocks and bonds really isn’t that much. I think it would surprise many investors that boring bonds have held their own. Over the last 40 years, stocks have beaten bonds by a final score 10.5% to 8.4%.
The difference is theoretically due to greater risk for stocks. (Note: This is different from the usual equity risk premium which looks at stocks versus T-bills. Here I’m looking at stocks and long-term corporate bonds.)
Here’s a chart I made of stocks and long-term corporate bonds. The only difference is that I stretched out the bond returns by 2% a year.
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This article has 14 comments:
How can you then conclude "isn't that much" difference?
If your paycheck was 25% better [or worse] you'd certainly think it was very significant.
$10,000 @ 10.5%/yr comes out to $542,614 over 40 years. That same $10,000 @ 8.4%/yr comes out to $251,867 over 40 years. I would say that is very significant.
[Difference in return] "isn't that much" is relative. To you guys, with 40 year horizons, it's a ton. For the investor that went long SPX in 2000 and is still negative, it's nothing.
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