Every investor is taught to build a diversified portfolio of stocks and bonds. Problem is, that\u2019s nonsense, says Andrew Smithers, head of Smithers and Co., an economics consulting firm in London. He thinks that bonds are highly overrated as an asset class and should generally be bypassed in favor of keeping cash in short-term deposits.<\/p>\n
To make his point, Smithers looks at the long-term results that a U.S. investor would have achieved with a portfolio of half stocks and half cash versus what the same investor would have achieved over the same period with a portfolio of half stocks and half bonds. <\/p>\n
Between 1899 and 2009, the stock-and-cash portfolio would have produced a real average annual return of 4.07%. By comparison, the stock-and-bond portfolio would have generated a real average annual return of 4.62%–just slightly more than the cash portfolio and at the cost of considerably more volatility. <\/p>\n
The very slight advantage in return that is gained by adding bonds is mostly the result of the unusual period since 1979, when bond investors made out like bandits as yields fell from the inflationary highs of the stagflation years and bond prices soared. Remove that period and the mix of stocks and cash actually does better than the mix of stocks and bonds. No matter which period you choose, the stock-and-cash mix generally a better risk-adjusted return.<\/p>\n
Smithers thinks that many investors are being lured into bonds these days as they search for an alternative to cash that is paying them nothing. He thinks these investors will be disappointed. As governments try to finance their expanding deficits with huge bond issues, and as inflationary expectations rise, bonds are set for a tumble.<\/p>\n
Freelance business journalist Ian McGugan<\/b> blogs for the Financial Post<\/i><\/p>\n
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Every investor is taught to build a diversified portfolio of stocks and bonds. Problem is, that\u2019s nonsense, says Andrew Smithers, head of Smithers and Co., an economics consulting firm in London. He thinks that bonds are highly overrated as an asset class and should generally be bypassed in favor of keeping cash in short-term deposits. […]<\/p>\n","protected":false},"author":4059,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-217941","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/217941","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4059"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=217941"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/217941\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=217941"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=217941"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=217941"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}