The Financial Times published an article last week arguing “Most of us have too much in bonds”.
www.ft.com/content/9b0cd35b-d109-4b71-9603-73d731e78117
Stocks have historically returned more than bonds. From 1900 to 2022, stocks returned 5% a year after taking inflation into account. Bonds returned only 2%.
www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/credit-suisse-global-investment-returns-yearbook-2023-summary-edition.pdf
A 5% annual return compounded over 100 years leads to $10,000 turning into $1.3 million. That is why it has been possible to become rich in the stock market by staying invested for long enough.
A 2% annual return compounded over 100 years, by contrast, leads to $10,000 turning into $70,000. It’s still a good return, but hardly life-changing.
The Financial Times article argues that many investors define “long term” as only a few years. However, the average person starts investing when they are 30 and continues until their 80s. Their investment horizon is really 50 years. Over such a long period, stocks have always outperformed bonds. This leads to the article’s contention that “most of us have too much in bonds”.
I agree that most people should keep most or all of their assets in only two asset classes: stocks and real estate. Your own home is a special asset due to its use value. It is also difficult to go wrong with investing in real estate in growing cities in growing economies. I would not personally keep any of my assets in bonds or cash, except temporarily, as over 50 years, which is my investing horizon, the loss of returns is substantial.
What can go wrong? Global stock markets lost 30% in World War I, 50% in the 1929-31 Wall Street Crash, 50% during the 1973-74 oil shock, and 40-50% in the 2000-02 internet bust and the 2008-09 Global Financial Crisis.
www.ubs.com/global/en/investment-bank/in-focus/2024/global-investment-returns-yearbook.html
An investor should be prepared to lose half of their money at any point, and plan accordingly. However, losing half of your money has historically not been that bad. Stock market crashes make stocks cheap and increase future returns. Over the past 100 years, the market has returned >100x, rendering a 50% loss insignificant by comparison.
2024 performance
@triangulacapital +30.1%
$SWDA.L +10.1%
Portfolio changes
Julius Baer was sold, Repsol bought.
