Weekend Reading: Stocks Have Not Always Beaten Bonds. Should You Care?

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading stocks dont always beat bonds Weekend reading stocks dont always beat bonds
Weekend Reading

The long-standing assumption of a consistent six-plus percent annualized return for U.S. equities, as supported by historical data, is being challenged.


Note the exception: Investment researcher Edward McQuarrie recently found that the potential annualized return of international stocks was 4.3 percent, with U.S. equities returning 5.4 percent pre-World War II. This disputes the belief that stocks consistently outperform fixed-income securities, especially over rolling 30-year periods. McQuarrie notes that advice to hold stocks for the long run, originally advised by Professor Jeremy Siegel, relies on the "stationarity" of equity returns.

Many assume that historical data automatically makes future predictions reliable. However, McQuarrie shows that the stability of long-term stock market returns is more of an exception in modern American history than a global norm. While stocks may outperform bonds for decades at times, there's no rhyme or reason to the pattern.

You might have hopped on the equity index fund train over the last 10 or 20 years, but today may be the best time for you to re-diversify into fixed income to generate even higher returns.