Don't Believe Stocks Always Beat Bonds? Read This


  • Are stocks or bonds a better investment?
  • Both have pros and cons.
  • But stocks tend to outperform bonds in the long term.

It's one of the most common questions we get asked…

"Are stocks or bonds a better investment?"

The confusion is understandable. And to average investors who are looking to restructure their investments or simply mobilize some cash they have lying around, it's a topic worth shedding light on.

Stocks offer unlimited upside. It's how legendary investors like Peter Lynch have managed to make record returns over the long term (Lynch made 29 percent annual returns for 13 years by investing in stocks).

But stocks also expose you to a company's potential failure. And how well management runs the company is often reflected in the value of each share. We've also written before of how, because of the way our minds are wired, the prospect of losses scare most investors from stocks.

Meanwhile, bonds are a fixed income investment. A bondholder is promised a rate of interest (his return) over a certain period of time. So when you buy a bond, you basically know how much you're getting at the end, assuming you hold on until maturity. Bonds generally offer a higher degree of safety and security than stocks.

But bonds aren't without risk. Bonds issued by corporations have the risk that the business could fail and leave bondholders with huge losses. And government-issued bonds are assured by the government, unless the government becomes unable to meet its financial obligations or its currency significantly loses value.

So which is the better investment?

What 90 years of data tells us

According to the Ibbotson SBBI Yearbook, a study of historical capital market returns, U.S. stocks have generally outperformed all other U.S. investment classes since the 1920s.

Only during the two decades, covering the 1930s and the 2000s, did bonds outperform stocks. And even then, the difference in returns weren't overwhelmingly in favor of bonds.

This article was written by

At Stansberry Churchouse Research, were taking the mystery out of finance and investing so that you are empowered and informed to make your own investment decisions.  Our aim is to help regular everyday investors who are wary of the misinformation that characterizes so much of what passes for investment insight. Our objective is to deliver actionable profitable investment ideas that will grow your portfolio and your wealth, and help you avoid costly mistakes. Ultimately this is all about creating long-term wealth to let you take care of your family, and live the life you’ve always wanted.   We give you the tools to make smart decisions… with the Asia Wealth Investment Daily, a free daily e-letter that opens the curtains on the most important and interesting investment, economic and business news and ideas in Asia and the world. Click here to sign up to receive the Asia Wealth Investment Daily in your inbox ever weekday for free.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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