2020-11-11 Buying stock

I sort of assumed it was a given that the stock market had a better return than treasury bonds. But today I saw a blog post saying that the excess return was minimal: less than 5%! And if you looked at cohorts (people saving for 40 years) over the last few decades you’ll see that returns at the end vary between plus/minus 10% with a median of again, less than 5%. Now, you don’t know in what sort of cohort you’ll end up in, so you don’t know where in that range you’ll fall, but chances are you won’t do a lot better than buying long term bonds (and you’ll probably stress less). At least that’s what I see in the blog post.

I did not expect this.


I would assume it’s an excess return of 5% per annum.

But in any case, everything depends on the starting yield of the bonds. 40 years ago in 1980 was the top in interest rates after the highly inflationary 1970s. Treasury Bonds yielded more than 20%! That was hard do beat for stocks for many years.

But now the same 10y Bonds just yield 0.9%. Almost impossible to outperform stocks with this low starting yield. Bonds offer returnless risk at the moment (risk of default or more likely of inflation).

– Peter 2020-11-11 23:08 UTC

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