The stock market’s high volatility and bear markets from 2000 to 2012 drove many stock investors into the perceived relative safety of bonds. But investment experts warn that this trend may not go on much longer. They say that over the next 10 to 20 years, it is more likely that stocks will be the winning asset class. They predict that, at best, bonds might offer a return of zero after accounting for inflation.
To some, the stock market may look risky, but many financial experts believe the bond market’s prospects look downright dismal.
Jeremy Siegel, finance professor at the Wharton School, says that bonds are overvalued in a similar fashion to the way stocks were overvalued in 1999. “The bond outlook is extraordinarily bad.”
According to David Rosenberg, chief economist at Gluskin Sheff & Associates, “We are in the very mature stages of the secular bull market in bonds.”
Roger Ibbotson of Yale University says stocks don’t have to jump a big hurdle to beat bond returns. “Long term, it’s a fine time to buy stocks.”
John Bogle, founder of the Vanguard mutual fund group, believes stocks will offer average returns of 7% per year.
About the only way bond prices can continue to rise would be during a panic worse than in 2008, when government bonds were snapped up by professional and amateur investors alike. If the economy recovers, it is quite likely that interest rates eventually will begin rising again. When that happens, bond prices will decline.
At Jentner Wealth Management, we avoid stock and bond market predictions. We believe the best way to obtain a successful, long-term investment experience is to diversify in a carefully-designed, global portfolio of stocks and bonds using low-cost, transparent and tax-efficient index and asset-class funds.
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