vand wrote:If you want a crazy stat, consider that in the 43 years between Sept-1981 to Apr-2024 the stock market has returned 3.5 times the return of long bonds - 11.27% vs 8.07%. Nothing that unexpect about that.. except that entire outperformance has only happened since March 2020, up to which time both were neck-to-neck:
Yes, stocks should return more than bonds over the long run, but it shows you that if you pick favourable/unfavourable startdates for one or the other, the "long run" trend can take 30 or 40 years to exert itself.
Well yes, as I said to Geoff you can demonstrate that almost any investment or asset class outperforms if you pick your dates shrewdly enough. And charting bonds from 1981 is about as close to cherry-picking dates as you can get. (There is even software that will produce the best possible timescale and chart for a given security, and fund managers are fond of using it for their ads).
Even so I struggle to see how a security that by definition cannot grow can be a substitute for a growth security. Look at a long-term chart of the S&P 500 and you notice a few things. Up eight-fold in just over 15 years. Up 20-fold in the last 35 years. Up 32-fold since inception 40 years ago. And that is all without including dividends!
The reason bonds are even being discussed here is as a "filler" for an equity portfolio. Bonds are included in a portfolio to reduce its volatility and provide some income. That is fine. There is evidence that a (say) 80/20 can give a better risk/return profile than 100% in shares. Personally I prefer to use cash as that safety buffer but then cash is just a very short term bond anyway.
Equities are for growth and bonds are for stability and income, the stability coming mostly by sticking to the short end. I think some people here and elsewhere have been seduced by bonds because of the freakish monetary conditions that led to ZIRP and the like. But just as in the 1970s, that infatuation was crushed by inflation.
dealtn wrote: despite buying (and selling) literally £trillions of gilts in my professional career I have never owned one personally
Well yeah, similar here, I worked in the City for 22 years, including stints on fixed income desks, and I never found much use for bonds personally. A lot of institutions are more or less forced to buy and hold them of course. It is equities that get me up in the morning; bonds just help me sleep.
I am about 90% in shares and 10% in short-term cash or cash substitutes. I never miss a wink of sleep.