Stocks are priced for zero growth? Maybe that's what we'll get.
If you bought an equal proportion of all the bonds that are publicly traded in the US, the average yield (interest payment) on those bonds, after expenses, would be 2.30%.
If you bought an equal proportion of all the stocks that are publicly traded in the US, the average yield (dividend payment) on those stocks, after expenses, would be 2.08%.
On average, over the past 60 years, bonds have yielded significantly more than stocks, because bonds have no upside potential -- you just get back the same amount of money you lent, assuming the borrower pays you back. Whereas stocks are generally thought to have powerful upside potential -- the profits of businesses will grow over time as the economy grows.
Also, with most bonds you don't get any protection from inflation, whereas with stocks you can expect that the value of a business will generally adjust for inflation.
Stock prices are much more volatile than bond prices, so they are riskier, and recent memories remind people of this risk. Remember a few years ago when global stock markets fell over 50%? Stocks should not be a short-term investment, you should not risk money you can't afford to lose in the stock market. Because then you will lose it ;-)
But for long-term investing, I'd rather put money in stocks than in bonds right now. The yield is almost the same, but stocks have more upside potential and inflation protection. Stocks can certainly go down from here, but if you don't need the money anytime soon, who cares?
If you don't want to spend it or give it away, does it really matter what happens to it?
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It looks like the market's memory is about 5 years. Over the past 5 years, average annual returns on stocks have been negative, -0.71%. So that's what people are expecting right now, that annual returns on stocks will be flat.
Meanwhile, over the past 5 years, average annual returns on bonds have been positive, 6.46%. But with bonds yielding only 2% now, there is no way bonds will return over 6% in the near future. No way. So why are bonds yielding so little now? Because the market's 5-year memory tells people that bonds are better than stocks, so people have bid down the yield on bonds (bond yields act the opposite of most asset prices, when you bid up the "price" of bonds you actually bid down the yield).
I'm not promising that stocks will do better than bonds over the next 5 years. Nobody can promise that. Maybe we really are about to have another 5-year period of zero growth. I'm just telling you what I'm thinking, and what I'm doing with my own TAX FREE "retirement" savings. YMMV.
If you bought an equal proportion of all the stocks that are publicly traded in the US, the average yield (dividend payment) on those stocks, after expenses, would be 2.08%.
On average, over the past 60 years, bonds have yielded significantly more than stocks, because bonds have no upside potential -- you just get back the same amount of money you lent, assuming the borrower pays you back. Whereas stocks are generally thought to have powerful upside potential -- the profits of businesses will grow over time as the economy grows.
Also, with most bonds you don't get any protection from inflation, whereas with stocks you can expect that the value of a business will generally adjust for inflation.
Stock prices are much more volatile than bond prices, so they are riskier, and recent memories remind people of this risk. Remember a few years ago when global stock markets fell over 50%? Stocks should not be a short-term investment, you should not risk money you can't afford to lose in the stock market. Because then you will lose it ;-)
But for long-term investing, I'd rather put money in stocks than in bonds right now. The yield is almost the same, but stocks have more upside potential and inflation protection. Stocks can certainly go down from here, but if you don't need the money anytime soon, who cares?
If you don't want to spend it or give it away, does it really matter what happens to it?
-----
It looks like the market's memory is about 5 years. Over the past 5 years, average annual returns on stocks have been negative, -0.71%. So that's what people are expecting right now, that annual returns on stocks will be flat.
Meanwhile, over the past 5 years, average annual returns on bonds have been positive, 6.46%. But with bonds yielding only 2% now, there is no way bonds will return over 6% in the near future. No way. So why are bonds yielding so little now? Because the market's 5-year memory tells people that bonds are better than stocks, so people have bid down the yield on bonds (bond yields act the opposite of most asset prices, when you bid up the "price" of bonds you actually bid down the yield).
I'm not promising that stocks will do better than bonds over the next 5 years. Nobody can promise that. Maybe we really are about to have another 5-year period of zero growth. I'm just telling you what I'm thinking, and what I'm doing with my own TAX FREE "retirement" savings. YMMV.