Are Stocks Still Better than Bonds?

Investors have long believed stocks outperform bonds over the long-term.  But long-term government bonds actually outperformed stocks for the 30 years ending Sept. 30, 2011, according to new data from Bianco Research in Chicago.  Bonds rose by 11.5% per year, beating the 108% increase in the S&P 500.  That’s the first time bonds beat stocks over a 30-year period since the Civil War!

Check out the historical data on how stocks and bonds performed relative to each other over the past 200+ years: 


# of Years


1803 – 1857



1803 – 1871



1857 – 1929



1929 – 1949



1932 – 2000



1981 – 2011



Sources:  Bloomberg, October 31, 2011; Index Universe; Ibbotson SBBI

Does this mean we dump stocks and own bonds?  No!  
The outperformance of bonds over stocks over the past 30 years was partially a function of the starting point and the “lost decade” for stocks, as stocks went through two bear markets over the past 11 years.  Long-term government bonds yielded 13-15% in 1981.  Current yields are down to just 3.1% according to Yahoo! Finance.  Remember, the price of bonds rise as the yield drops, giving investors a capital gain on top of the interest return.
Given such low yields now, it’s hard to believe you’ll be able to get the same capital gain boost from bonds that occurred over the past 30 years.  Jeremy Siegel, author of Stocks for the Long Run, says, “It’s absolutely mathematically impossible for bonds to get any kind of returns like this going forward.”

This historical data tells us several things:

  1. Stay flexible.  There are no absolutes when it comes to investing except, maybe, that there are no absolutes.
  1. Know your history.  There’s a time and a place for each asset class and placing each asset within its historical context is important.
  1. Keep learning about investing.  ‘Buy and hold’ may be dead in this age of volatility.  My money is on active trading in selective equities.  Mutual funds are taboo.  Active investing requires a real commitment to follow the markets closely.  All the more reason to follow StocksonWallStreet!

Related posts:

  1. Expect These Financial Stocks to Make a Strong Rebound
  2. Three Top Bank Stocks Worth Looking Into: Bank of America, BlackRock, & Morgan Stanley
  3. Great Time for Dividend Investors: Consider Dividend ETFs

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