Stocks Vs. Bonds, Part 2: Putting Your Money to Work

Yesterday's piece strongly suggested that the performance edge of stocks over bonds could erode in the years ahead. My intent was to present contrarian thinking that might lead you to reconsider the assumptions underlying your investment stance. I promised a follow-up on the investment implications of that analysis.

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Before we do that, though, let's recap briefly.

Robert Arnott, managing partner at First Quadrant, an investment advisory service based in Pasadena, Calif., and Ronald Ryan, president of Ryan Labs, a pension consulting firm based in New York, presented a paper on Monday arguing that bonds could outperform stocks in the coming decades. (The paper is slated to appear in the winter issue of the Journal of Portfolio Management.) Arnott said he expects stocks to earn only a 3% to 4% average annual real return, significantly below the 5% to 7% real return assumptions suggested by historical data. ...