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Klement on Investing Subscribe Sign in. About Archive Help Sign in. Share this post. Why did stocks not outperform bonds for 50 years? Joachim Klement. This opens up a couple of questions: Why did dividends not provide a risk premium to investors despite significant uncertainty around dividend payments both in the short term and in the long term as we have seen in the latest crisis?
Create your profile. Risk Management. Corporate Bonds. Fundamental Analysis. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.
At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Investing Stocks. Key Takeaways Bond rates are lower over time than the general return of the stock market. Individual stocks may outperform bonds by a significant margin, but they are also at a much higher risk of loss.
Bonds will always be less volatile on average than stocks because more is known and certain about their income flow. More unknowns surround the performance of stocks, which increases their risk factor and their volatility. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Over the entire period since , stocks beat bonds by 1. Since , the equity premium has been 5.
Similarly, the odds that the stock market will lag bonds over any given year period are lower than previously assumed. The U. Imagine what it would do to your retirement finances if stocks between now and produce a return less than that.
Some who are otherwise inclined to accept that the equity premium is smaller than previously assumed nevertheless argue that the situation today is different, since interest rates are so low. In no event was there any pattern that met traditional standards of statistical significance. That means that odds of stocks lagging bonds over the next two decade are no different just because interest rates currently are so low.
That in turn means we have to face squarely the 2-out-of-5 odds that stocks will indeed underperform bonds between now and
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