February 5, 2024 – Two recent papers in the personal finance area have caused enough of a stir that I’ve gotten numerous requests for comment. I noticed that if I compile all my notes, calculations, simulations, and replies, I already have more than half of a new blog post. So, today I would like to share my results with my other readers who might also wonder what to make of those new research ideas. The first paper claims that the famous “Stocks for the Long Run” mantra is all wrong because stocks don’t outperform bonds as reliably as Jeremy Siegel and many prominent finance pundits claim. The second paper effectively claims the opposite, namely that a 100% equity portfolio, half domestic and half international stocks, handily beats any bond portfolio and all diversified stock/bond portfolios, including life-cycle, i.e., target date funds. Thus, the authors claim they have upended decades of personal finance conventional wisdom on stock/bond allocations, diversification, and target date fund glide paths.
Well, isn’t that ironic; both papers can’t be right! So, which one is right? Or are they both wrong, and conventional wisdom prevails? I started this post and wanted to comment on both papers in one single post but then ran out of space. So, I had to split my material into two posts. Today, I share my thoughts on the first paper and on whether stocks are still a good long-run investment in light of the new data. But stay tuned for the follow-up post, likely later this week or early next week!
Let’s take a look…
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