$5.6 billion stocks vs $8 million bonds

[Elbata]

After taking into account taxes and inflation, bonds become worth less in real dollars.

After reading John Bogle's book about mutual funds, he mentions (and this is from what I remember, so please correct me if I'm wrong), if $10K was invested in stocks in 1820, to when he wrote his book it would be worth $5.6B taking into account inflation. Bonds would be $8 million after inflation.

So it seems to me, if I'm investing for a 30-40 year time horizon, stocks would most likely way out perform bonds. At the Boglehead forum, all the smart people say depending on one's age, say 50, 50% of money should be stocks and 50% bonds.

Even if I lost money on stocks over a 10 year period, I'd still rather take my chances with Mr Market.

 

[IBWino]

The problem is volatility. Stock prices can fall drastically and take many years to recover. If you have to sell some of them while they are low, you may significantly reduce the capacity of your portfolio to recover.

 

[MichaelB]

If your 30 year horizon is during the accumulation phase, by all means, the equity risk will probably pay off. In the withdrawal phase, however, as IBWino points out, portfolio volatility becomes more important and all equities makes for a very volatile portfolio.

 

[foxfirev5]

After taking into account taxes and inflation, bonds become worth less in real dollars.

After reading John Bogle's book about mutual funds, he mentions (and this is from what I remember, so please correct me if I'm wrong), if $10K was invested in stocks in 1820, to when he wrote his book it would be worth $5.6B taking into account inflation. Bonds would be $8 million after inflation.

So it seems to me, if I'm investing for a 30-40 year time horizon, stocks would most likely way out perform bonds. At the Boglehead forum, all the smart people say depending on one's age, say 50, 50% of money should be stocks and 50% bonds.

Even if I lost money on stocks over a 10 year period, I'd still rather take my chances with Mr Market.

The big question is - how many 25-40% declines in equities have you been through and how will you react when this happens. Since 1974 I've been through a few and always hung on - however a healthy dose of cash/ bonds made it bearable.

 

[clifp]

After taking into account taxes and inflation, bonds become worth less in real dollars.

After reading John Bogle's book about mutual funds, he mentions (and this is from what I remember, so please correct me if I'm wrong), if $10K was invested in stocks in 1820, to when he wrote his book it would be worth $5.6B taking into account inflation. Bonds would be $8 million after inflation.

So it seems to me, if I'm investing for a 30-40 year time horizon, stocks would most likely way out perform bonds. At the Boglehead forum, all the smart people say depending on one's age, say 50, 50% of money should be stocks and 50% bonds.

Even if I lost money on stocks over a 10 year period, I'd still rather take my chances with Mr Market.

I certainly agree with you. Some people are able to handle volatility better than others. So a person with secure forms of income, pension, SS, 10 years CDs should be able to handle more stock market volatility.
I mentally separate Mr Market valuations of my assets from the income, mainly dividends with some rental income, that they produce. Income volatility is significantly lower than valuation volatility.

 

[Elbata]

Recently reading on the Bogle board about a guy who's 39, sold his business and has ~$25MM. One of the comment's advice was to buy some kind of CA bond fund and was guaranteed ~$500K/year tax free, a return of ~1 to 2%.

I understand the concept of safety, so if you want to be that safe, why not just put all your money in the bank? But wait, the bank might burn down.

 

[pb4uski]

Given Ca's financial situation I'm not sure I would invest my entire wad in a Ca bond fund. Psst.....