If stocks always produce better results, why own bonds at all?

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Rebalancing your own portfolio periodically is the right move

Every study shows that stocks outperform all other types of investments over the long term – and by a large margin., Wharton Professor Jeremy Siegel writes: “Over long periods of time, the returns on equities not only surpassed those of all other financial assets but were far safer and more predictable than bond returns when inflation was taken into account.”

“The buy-and-hold, 100 per cent stock portfolio is a double-edged sword,” he says. “If you can stick with it through stomach-churning bear market losses, and have a long-term horizon during which the need to liquidate assets will not arise, then strapping yourself into the roller-coaster of an all-stock portfolio may indeed be the optimal solution. Conversely, it would be difficult to identify a worse alternative for those who do not meet these criteria.

As you can see, while stocks were taking a beating, bonds were producing profits in all cases but one . And even that loss was only about one-tenth of the decline in stocks. On average, stocks fell 34.2 per cent during these market crises. Bonds gained 10.9 per cent. You can do this by rebalancing your own portfolio periodically or you could add a position in a tactical asset allocation mutual fund or ETF to your holdings.

 

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