Stocks or Bonds: The Easy Choice

No one knows what any market will do in the future. But with hundreds of billions of dollars pouring into bonds and 10-year Treasuries yielding 1.5%, it's worth taking a peek at what history says about the past. This quote, from The Economist, seems particularly relevant: "Investors who bought Treasury bonds at a 2% yield in 1945 earned a negative real annual return of 2.3% over the following 35 years."

How about stocks? Here, too, no one knows what the future will bring. But history has an opinion. The same Deutsche Bank study mentioned above shows that, after inflation, stocks produced an average annual return of negative 3.4% a year from 2000 to 2009. Something else that sticks out from the study's nearly 200 years of history: Stocks have never produced back-to-back decades of negative real returns. Big booms have invariably followed long slumps. Stocks logged negative real returns during the 1910s, and followed up with blistering 16% real returns in the following decade. Returns went negative again during the 1970s, then shot to nearly 12% a year in the 1980s. Unlike bonds, there are several good, high-quality stocks with long track records that can be purchased today at prices that set you up to earn decent future returns.

Source: Motley Fool

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