Stocks vs Bonds

Asset mix has a lot to do with an individual’s financial situation, age, and personal risk tolerance. One of the most common question clients ask us is, “How much should I invest in equity, compared to how much I should invest in fixed income?”

We constantly compare 10-year bond yields with earnings yields. Often stocks are more attractive than bonds given that earnings are growing and bond yields are relatively static. However, it is critical that your account reflect your tolerance for risk and your income requirements. A portfolio that is fully invested in stocks is not for everyone, even though it may have a greater likelihood of outperforming bonds over the long term.

Including bonds with stocks in a balanced portfolio reduces overall portfolio volatility, although it can also result in lower returns compared with an all-equity portfolio.

“Most trends both bullish and bearish eventually become overdone, profiting those who recognize them early but penalizing the last to join. ‘What the wise man does in the beginning, the fool does in the end.’”

– Howard Marks