25 Years of Stocks Vs. Bonds

When we ask the question, “Are stocks cheap?,” we have to consider the important qualifier: compared with what?

Understand that every asset is in competition with every other asset for investors’ money. It’s like one giant cage match of relative value. There’s no absolute standard of value for any asset class at any time. The question is always, “Compared with what?”

This is why the stock and bond markets have such a problematic relationship. Frenemies, if you will. Every so often I like to look at how the stock market is doing — not in terms of dollars, but in terms of the bond market.

Below is a chart of the total return of the Wilshire 5000 (including dividends) divided by an index of AAA bonds.


Over the long haul, I would expect stocks to out-perform bonds, but not by much. The chart above shows that it’s a very rocky and highly volatile relationship.

Stocks have done well recently, but that’s making up a lot of lost ground. over the last 15 years, stocks have done just about as well as bonds have.

I wouldn’t make any predictions off this chart, but I would draw your attention to an interesting aspect. Notice how the blue line climbs steadily but falls very quickly. Yes, the bond market doesn’t like being ignored.

Posted by on January 23rd, 2014 at 3:45 pm

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