Sound Investing Bootcamp #1 - The Biggest Decision of All: Stocks vs. Bonds
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Feb 26, 2025 A clear breakdown of the core choice between bonds and stocks and what each represents. Discussion of historical return tables and quilt charts reaching back to 1928. Examination of diversification, asset-class splits, and small‑cap/value premiums. Analysis of long‑term compounding, time horizons, and how different fund mixes smooth volatility.
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Stocks Versus Bonds: Fundamental Difference
- Stocks offer much higher long-term upside while bonds offer predictable income and short-term safety.
- Paul Merriman emphasizes that owning both fits different goals: stocks for growth, bonds for income.
Favor Stocks When Retirement Is Decades Away
- If you don't need the money for decades, favor stocks for their higher expected long-term returns.
- Paul Merriman recommends younger investors accept equity volatility to capture growth over long horizons.
Bond Duration: Return Versus Volatility
- Different bond durations trade off return for volatility: short-term is lowest return and least volatile, long-term higher return but larger swings.
- Over long horizons the spread narrows, making intermediate bonds often more efficient than long-term ones.