Why taking the safe route does not work; DO NOT HOLD ALL BONDS OR CASH!

by Evan on October 12, 2009

While listening to the Rick Edelman show a week ago, I heard a great statistic that is very useful for everyone to understand. Here it is:

–Over the last 83 years since 1926, there have been 880 rolling 10 year periods.

A.) Bonds have only beat stocks 17% of those 880 periods.

B.) That means 83% of the time stocks have outperformed bonds!

With interest rates at all time lows, it is especially important not to chase bonds, as a majority of your investment holdings, because as interest rates go up, which is going to happen over time, bond prices must go down. Thus, right now is completely the wrong time to shift to a more conservative portfolio full of bonds because bond prices will be decreasing and bonds statistically do not beat stocks over 4 out of 5 10 year time periods!

The conclusion to draw from this set of statistics is to always be diverse with your investments. It is important to hold both bonds and stocks, but remember that due to inflation and current interest rate risk, bonds on their own, do not make sense.

No Comments - post a comment

No comments yet.

RSS feed for comments on this post. TrackBack URL

Leave a comment

You must be logged in to post a comment.