Compared to the possibility of stocks dropping 50% or more which has happened, bonds are absolutely a safe investment.Deflation is a great point to bring up, especially because deflation makes bonds a better investment. I was playing around with inflation calculators because of this thread, and it looks like $1 in 1919 held the same purchasing power as a $1 in 1942. That kind of lack of inflation would seem impossible these days. And of course inflation would make non inflation-protected bonds a worse investment.
Stock dividends were in the 5%-6% range back then (compared to 1% today), and we had deflation during the Great Depression (which is WHY it was a Depression), and the Fed is on record saying they will do everything they can to stop deflation from happening again, so I'm not sure it's a good idea to stress test your portfolio to 1920-1941.
More generally, I think people use a fear of stocks to default to bonds, without actually analyzing what risks bonds have. As we have just seen, a few years of high inflation can wipe out many years or even decades of low bond returns. Thus, I think it is a big mistake to just assume bonds, especially at low yields, are safe investments.
Statistics: Posted by TrustTheMarket — Fri Sep 27, 2024 9:02 pm