'This explosive discovery about stock and bond returns will shake your views on investing' -- we don't often hear that kind of talk from MktwHulbert:
How would you change your financial planning strategy if you couldn’t count on stocks to outperform bonds? Not just for a year or two, but over your lifetime?
The net effect of his findings is to reduce estimates of what researchers refer to as the “equity premium” — the margin by which stocks outperform bonds. Previous research had found this premium to be much larger — as much as six or more annualized performance points, according to some studies. McQuarrie’s best guess, based on the entire period since 1793, is that the premium is just 1.7 annualized percentage points.
The major investment implication of McQuarrie’s research is that we should lower our confidence that stocks will outperform bonds over our investing lifetimes. If our investment horizons are like the average experience between 1793 and 1942, or since 1982, then there may be no equity premium. If we do decide to make a big bet that stocks will outperform bonds, then we in effect are betting that the future will be more like the 1942-1982 experience than the decades before or since.
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