Notion that stocks will always outperform bonds a myth
The notion that stocks will always outperform bonds is a myth, with bonds winning over the very long term, according to Research Affiliates and RealIndex Investments chairman and founder Rob Arnott.
Speaking at the PortfolioConstruction conference in Sydney, Arnott said the revaluation of shares during the financial crisis had depressed the sector’s long-term returns.
“As a consequence of that we had a 40-year span … in which ordinary Treasury bonds outperformed stocks,” Arnott said.
“So the notion that stocks reliably beat bonds over a [certain] period of time is a myth, they do win in the very long run.”
Arnott encouraged investors not to view stocks as the “be all and the end all core portfolio for all time”. Rather, investors should diversify their portfolios more broadly and look to use stocks as part of their toolkit "when it’s cheap, to be underweighted when it’s expensive, and to be replaced with more interesting assets on those occasions when stocks are very, very poorly valued”.
Arnott said while stocks weren’t very poorly valued right now, they were no longer cheap.
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