Looking back in hindsight is always risk-free, though, which can lead to faulty conclusions.
This is especially true for stocks vs bonds. Because the cash flows of bonds are fixed, prolonged inflation or rate spikes can deliver a loss that stays a loss, making long-term "safety" in bonds partly an illusion.
This is only true if you look back 30 years. What will happen in the next 30 years? Do you know for sure?
And if a diversified portfolio of US stocks all suddenly go bankrupt, that probably means the US is toast and therefore bonds are screwed too.
Outside of catastrophic black swan events, like I said, stocks generally mean revert if you have a long enough time horizon to allow it
Note that almost every exchange outside the US has been flat or negative for decades. The US has held a precious position for a few generations that’s made “chart go up” feel like a given
As someone who works in finance this struck me as a remarkable claim. Upon inspection it turns out to be spectacularly incorrect. After adjusting for inflation it's actually the opposite, the vast majority of countries have seen their own version of the S&P 500 grow over a 30 year period, after adjusting for inflation, not stagnation or decline. Developing countries, particularly those in Asia, have seen incredible returns over a 30 year period, albeit with a great deal of volatility involved.
Our neighbor to the north, Canada, has seen gains that are slightly below the U.S., but our neighbor to the south, Mexico has seen about the same growth as our own, once again accounting for Mexico's own inflation.
Europe has also experienced a great deal of growth with many European countries even growing moreso than the U.S., for example Germany.
While there are examples of decline, they are in countries that are both poor and have unstable governments. Most countries that are strictly poor but don't suffer from instability have for the most part seen growth rather than stagnation.
So I don't know exactly what led you to believe your claim that "almost every exchange" has been flat or negative, but it's certainly not correct.
Worth noting that a stock exchange becoming defunct is not the same as the value of the index associated with the stocks listed on that exchange going to zero.
For example numerous US stock exchanges also go defunct. Nevertheless the value of the stocks that traded on those exchanges remains unaffected. It's not like if NASDAQ went out of business tomorrow that Google and Microsoft would all declare bankruptcy.
The level of the MSCI China index 30 years ago was HKD 70 and it's HKD 75 today. It's kind of incredible but not in a good way. Total return is less than 3% p.a. MSCI Thailand is even worse.
MSCI Korea has a total return of 7% (not bad, 4% above inflation) but it doesn't do better than developed countries.
Of course they look much better if we start right after the 1997 Asian financial crisis but, hey, it was you who talked about "a 30 year period".
I can't make sense of that example. Are you maybe comparing the level of the S&P 500 with the DAX which is a total return index?
And the US itself was flat for over a decade, with the only thing saving a domestic investor's returns being bonds:
* https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...
And as a Canadian, there are different sectors that would have given me positive gains over the years (I generally own mostly VEQT, a globally-diversified ETF):
* https://stingyinvestor.com/SC/PeriodicTableofAnnualReturns.p...
And it's perhaps looking more closely at what specifically about the US has been positive:
> Looking at this data, there are two distinct periods of extended U.S. outperformance—the late 1990s and today. And what do these two periods have in common? The rise of U.S. technology stocks. Bespoke Investment Group recently created this chart illustrating this phenomenon:
> Now that the U.S. technology sector makes up over 30% of the S&P 500 (as it did back in 2000), this begs the question: Is U.S. outperformance just a technological fad?
* https://ofdollarsanddata.com/do-you-need-to-own-internationa...
Outside of tech, how much better is the general US market than any other market?
If the US becomes toast, whatever caused it to happen, and/or the geopolitical, economic consequences of it having happened, would likely be so enormous that stock and bond prices in your portfolio would be the very least among your problems.
Will the US economy completely collapse in the next 30 years?
Will the US government completely collapse in the next 30 years.
For the past century I think the answers to those questions would have been, "Almost certainly not" and "Not a chance in hell"
I honestly didn't know where they stand today, but there's definitely been movement.
If things go the way they have been for a while now, I'll be able to retire comfortably. If stocks don't gain or lose a penny for the next 40 years, I think society as a whole will have reframed retirement. If society collapses, it didn't matter anyways.
Investing in Apple 30 years ago would net a much higher return on $5k but even Apple was considered a unsafe investment in the 90s. On the other hand, Enron was considered a safe investment by many but went bankrupt almost overnight and shares became practically worthless.
Bonds can "lose value" and they did so quite strongly in 2022/23.
If you bought 20-year bonds in 2020 for $100 they are worth $60 now (and were as low as $55 in 2023). Getting $1 per year is far from compensating the loss.
They will recover gradually until they "pay out" $100 but right now they're underwater.
As to the Nikkei retort this seems to be hindsight bias and ignorance of historical context, the general consensus at the time (both inside and outside of Japan) was that the Japanese economy was going to take over the world.
Okay, and how many people put 100% of their money in at December of 1998? Versus how many people have been dollar cost averaging for the last 30+ years?
* https://ofdollarsanddata.com/now-do-japan/
Further, it's not like the US is immune to long periods of minimum returns:
* https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...
Perhaps these examples are a lesson for what's important: diversification.
I understand what you are trying to say here, but it really depends on what the “risky asset” is. If you hold a diversified set of risky assets, like a stock market index fund, then what you say is correct.
However, there are other risky assets that don’t hold to this “a long time horizon reduces risk” statement. For example, if you put all your investment in a single stock, that is a risky asset that does not necessarily revert to the mean over time. Many companies go out of business, and the stock goes to zero and will never recover no matter how long you wait.
It is important to note what kind of risk you are taking.
Then bond prices would have declined (and their expected returns or interest rate would have increased) until, in equilibrium, the anticipation was that the stocks and bonds would deliver comparable expected risk-adjusted returns.
A more interesting graph would be to show me the 30 year return at each point along the way. My gues is that stocks would still mostly come out on top, but not the runaway you see here.
Risk is the chance something bad happens to you.
Held for 30 years, bonds are eaten alive by inflation. That's a bad thing that happens to you if you hold bonds for a long time.
Given the ever increasing number of people bankrupted by medical bills, divorce, child support, lawsuits, etc we're quickly moving into a world where it might be foolish to expect assets accessible to a brokerage or bank will still be there by the time you need them.
20-year and 30-year bonds yield 5% today. That's well above inflation expectations.
You can actually buy inflation-linked bonds that are going to pay you 2.5% over inflation for the next 20 or 30 years - whatever happens with inflation.
I'd argue a much better 30-year bet is that somebody like Coca Cola will be able to charge an amount for their product that reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase.
I didn’t say anything about “risk-free” (the closest is the second paragraph but you don’t address it at all).
I was clearly commenting on the quoted sentence “Held for 30 years, bonds are eaten alive by inflation” which has not applied since the seventies, doesn’t seem the best assumption going forward, and has an easy solution as discussed.
> reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase.
If your main objective is to beat inflation, getting inflation + 2.50% with certainty seems an attractive proposition! (Inflation-linked bonds have a “fixed” rate on top on inflation.)