Did bonds really beat stocks over the last 20 years?

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SU-1977
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Did bonds really beat stocks over the last 20 years?

Post by SU-1977 »

Multiple articles including https://www.nytimes.com/2020/05/01/busi ... nd%20index state that over the last 10, 20, 30 years bonds destroyed S&P 500. When I compare charts, I see the opposite. For example, S&P 500 vs. Vanguard Long-Term Treasury Fund since Aug 1, 2000 shows 144% to 58% victory for S&P 500:
https://finance.yahoo.com/chart/VUSTX#e ... J0In19fX0-

Am I drawing charts wrong? I can not figure out how all the article authors arrive to the conclusion that bonds have been outperforming stocks. :confused
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Re: Did bonds really beat stocks over the last 20 years?

Post by tennisplyr »

Well I guess if you find a really bad downturn year for stocks you can show bonds in a better light. I put some figures into portfolio visualizer and it wasn't even close.
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Re: Did bonds really beat stocks over the last 20 years?

Post by YRT70 »

For what it's worth, long term treasury did beat TSM over 20 years. https://www.portfoliovisualizer.com/bac ... ion2_2=100
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Re: Did bonds really beat stocks over the last 20 years?

Post by Brianmcg321 »

If you had invested a lump sum in two portfolios in 2000, one all stocks, and one in a standard 60/40, it wasn’t until 2018 that the all stock portfolio caught back up from the 2000, and 2008 crashes.

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Re: Did bonds really beat stocks over the last 20 years?

Post by columbia »

Three bear markets can be detrimental to stock returns.
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Re: Did bonds really beat stocks over the last 20 years?

Post by Bastiat »

It’s worth noting the the federal funds rate was around 6% in 2000 and has been pegged at 0 - with a brief exception 2018-2019 - since 2009 and will be pegged at zero for the foreseeable future. Also, the Fed has been buying treasuries and currently holds almost $4,500,000,000,000 ($4.5T) worth.

Both of these factors tend to raise bond prices and are unique to the past 20 years. Past performance is not indicative of future results.
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Re: Did bonds really beat stocks over the last 20 years?

Post by dbr »

When the press talks about "bonds" they mean long term Treasuries. From 1980 to now interest rates have had a long fall to an unprecedented low level meaning long duration bonds such as 20yr-30yr have indeed returned at about the same level as stocks which had serious crashes in 2000+ and in 2009. VUSTX has returned over +20% YTD. If you back off to intermediate term bonds, bonds do not even remotely generate higher returns than stocks over any period of meaningful length except obviously when stocks are in a bear market for awhile.

The standard deviation of annual returns for VUSTX has been about 10% and for stocks about 15%, so both investments are risky. While it makes some sense to combine a lot of stocks with some long Treasuries it makes no sense to cut the risk of a portfolio with a lot of bonds by using long treasuries. The standard deviation for VFITX is about 5%.
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Re: Did bonds really beat stocks over the last 20 years?

Post by willthrill81 »

dbr wrote: Sat Sep 05, 2020 8:54 am When the press talks about "bonds" they mean long term Treasuries. From 1980 to now interest rates have had a long fall to an unprecedented low level meaning long duration bonds such as 20yr-30yr have indeed returned at about the same level as stocks which had serious crashes in 2000+ and in 2009. VUSTX has returned over +20% YTD. If you back off to intermediate term bonds, bonds do not even remotely generate higher returns than stocks over any period of meaningful length except obviously when stocks are in a bear market for awhile.
Well said.

To summarize, the two big problems with this analysis are (1) very few investors hold only long-term Treasuries as their fixed income holding and (2) the periods in question saw huge drops in interest rates that boosted bond returns and especially those of long-term bonds.

I'm not aware of any 20 year period in U.S. history where intermediate-term Treasuries had higher returns than stocks.
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Re: Did bonds really beat stocks over the last 20 years?

Post by jeffyscott »

SU-1977 wrote: Fri Sep 04, 2020 10:09 pm Am I drawing charts wrong? I can not figure out how all the article authors arrive to the conclusion that bonds have been outperforming stocks. :confused
Is yahoo a price only chart :?: , because M* shows something quite different. I used the actual dates specified in the article, Jan. 1, 2000 to April 29, 2020, but the picture doesn't really change (in that long term treasuries still win by a lot) even using the 20 year period ending today:

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Re: Did bonds really beat stocks over the last 20 years?

Post by abuss368 »

Many of these articles are complete head scratchers. Who holds only long term bonds? Interest rates have been declining for 40 years.

That is huge.
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Re: Did bonds really beat stocks over the last 20 years?

Post by Orbuculum Nongata »

Bastiat wrote: Sat Sep 05, 2020 8:47 am ...the foreseeable future.
Is there any such thing?
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Re: Did bonds really beat stocks over the last 20 years?

Post by JoMoney »

Stocks starting from the period starting 20 years ago, the year 2000 specifically, during the dot-com bubble, was one of the worst periods for stocks.
There were long-term investment grade bonds available at that time yielding something around 8%, interest rates fell precipitously over the next 20 years giving an enormous boost to those higher yielding bonds available in the past.
Yes, it happened, but don't expect bonds going forward to have the performance they did in the past. Stocks remain as risky as ever, but if stocks managed to repeat the historically low returns they had over the past 20 year period, that would likely be higher then the returns bonds are promising at current rates.
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Re: Did bonds really beat stocks over the last 20 years?

Post by flaccidsteele »

columbia wrote: Sat Sep 05, 2020 7:50 am Three bear markets can be detrimental to stock returns.
Unless you increase buys during the bears

I personally loved those 3 bears. They allowed me to retire in my 40s. They will forever be my all-time favorite US market crashes
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Did bonds really beat stocks over the last 20 years?

Post by alfaspider »

This is the problem with arbitrary time periods that assume an investor goes all in on a single investment on a single day. Do the same analysis in 14 months, and stocks will come our way ahead because a hypothetical investor will have bought stocks after the post 9/11 and dot com crash and after interest rates started to decline.

You can write a similar story about stocks under performing at any milestone date that occurs immediately before a significant drop in the market.

In the real world, almost all investors contribute over the course of decades. These specific date snapshots are thus pretty meaningless.
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Re: Did bonds really beat stocks over the last 20 years?

Post by willthrill81 »

JoMoney wrote: Sat Sep 05, 2020 10:33 amStocks remain as risky as ever, but if stocks managed to repeat the historically low returns they had over the past 20 year period, that would likely be higher then the returns bonds are promising at current rates.
Since 2000, U.S. stocks have returned about 6.4% nominal. By comparison, with a nominal yield of only 1.14%, TBM is unlikely to even match inflation.
Last edited by willthrill81 on Sat Sep 05, 2020 11:08 am, edited 1 time in total.
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Re: Did bonds really beat stocks over the last 20 years?

Post by Jags4186 »

alfaspider wrote: Sat Sep 05, 2020 10:49 am In the real world, almost all investors contribute over the course of decades. These specific date snapshots are thus pretty meaningless.
I think this is the wrong way to look at it. The reality is many people — especially folks on this forum — will spend as much time, if not more, spending down a portfolio versus accumulating a portfolio.

I’m sure Taylor is someone who is in that position.
Last edited by Jags4186 on Sat Sep 05, 2020 11:03 am, edited 3 times in total.
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Re: Did bonds really beat stocks over the last 20 years?

Post by Jags4186 »

willthrill81 wrote: Sat Sep 05, 2020 10:56 am
JoMoney wrote: Sat Sep 05, 2020 10:33 amStocks remain as risky as ever, but if stocks managed to repeat the historically low returns they had over the past 20 year period, that would likely be higher then the returns bonds are promising at current rates.
Since 2000, U.S. stocks have returned about 6.4% real, remarkably close to their historic long-term average of 6.9%. By comparison, with a nominal yield of only 1.14%, TBM is unlikely to even match inflation.
I don’t think your numbers are right. Since 2000 the US TSM has only returned 6.55% nominal. Inflation has been low, but not that low.

Since 2000 the SP500 has only returned roughly 3.8% real.
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Re: Did bonds really beat stocks over the last 20 years?

Post by BogleMelon »

Also is that chart representing total returns on stocks (dividends + appreciation)? Or only stock prices (only stocks appreciation)?
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Re: Did bonds really beat stocks over the last 20 years?

Post by willthrill81 »

Jags4186 wrote: Sat Sep 05, 2020 11:00 am
willthrill81 wrote: Sat Sep 05, 2020 10:56 am
JoMoney wrote: Sat Sep 05, 2020 10:33 amStocks remain as risky as ever, but if stocks managed to repeat the historically low returns they had over the past 20 year period, that would likely be higher then the returns bonds are promising at current rates.
Since 2000, U.S. stocks have returned about 6.4% real, remarkably close to their historic long-term average of 6.9%. By comparison, with a nominal yield of only 1.14%, TBM is unlikely to even match inflation.
I don’t think your numbers are right. Since 2000 the US TSM has only returned 6.55% nominal. Inflation has been low, but not that low.

Since 2000 the SP500 has only returned roughly 3.8% real.
Yes, you're right. I was quoting nominal returns. I've updated by post accordingly. Thanks.
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Re: Did bonds really beat stocks over the last 20 years?

Post by illumination »

Comparisons like this are so cherry picked, why not just also choose the best performing stocks over the same period since you are doing that with bonds locking in on long term treasuries? And to add to the cherry picking , they also start at 2000, and that's also no accident. Almost like they have a certain conclusion they want to reach?

When I compared total US with total bond US, from 2000 to today and I got 6.55% CAGR vs 4.98% CAGR.
https://tinyurl.com/y32ltzzl
Over a lifetime of investing, that's an incredible difference in your retirement, even for a cherry picked bad time for stocks and good time period for bonds. And if you move the time frame in and out just few years, it dramatically boosts stock returns. I wonder why these comparisons always have 2000 as the start point? :happy

When you go to say 2002 for the starting point stocks return 8.59% vs 4.47%, when you start at 1998, it's 7.95% vs 4.88% CAGR, stocks/bonds.
https://tinyurl.com/y6z8zk28

And what about the average investor that doesn't dump everything in one single year but makes ongoing contributions throughout this time frame? The end balance is again almost double after 20 years in stock's favor.

https://tinyurl.com/yyn899o6


Also, I think these discussions should at least do a back of the envelope calculation how negative interest rates would need to go in order to give an investor a similar rate of return for bonds over the next 20 years. And what would happen to returns if interest rates went up to even something close to what they were during this time frame being looked at.
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Re: Did bonds really beat stocks over the last 20 years?

Post by Oicuryy »

Does Portfolio Visualizer draw telltale charts?

Image

When the line was going up VUSTX was outperforming VTSMX. When the line was going down VUSTX was underperforming. Data is Yahoo's monthly adjusted closing price.

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SU-1977
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Re: Did bonds really beat stocks over the last 20 years?

Post by SU-1977 »

Thank you for all the insightful replies. :sharebeer
jeffyscott wrote: Sat Sep 05, 2020 10:19 am
Is yahoo a price only chart :?: , because M* shows something quite different. I used the actual dates specified in the article, Jan. 1, 2000 to April 29, 2020, but the picture doesn't really change (in that long term treasuries still win by a lot) even using the 20 year period ending today:
Oicuryy wrote: Sat Sep 05, 2020 12:02 pm Does Portfolio Visualizer draw telltale charts?

When the line was going up VUSTX was outperforming VTSMX. When the line was going down VUSTX was underperforming. Data is Yahoo's monthly adjusted closing price.

Ron
Are you saying the Yahoo chart https://finance.yahoo.com/chart/VUSTX#e ... J0In19fX0-
shows VUSTX returns without dividends?
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Re: Did bonds really beat stocks over the last 20 years?

Post by randomguy »

Jags4186 wrote: Sat Sep 05, 2020 10:58 am
alfaspider wrote: Sat Sep 05, 2020 10:49 am In the real world, almost all investors contribute over the course of decades. These specific date snapshots are thus pretty meaningless.
I think this is the wrong way to look at it. The reality is many people — especially folks on this forum — will spend as much time, if not more, spending down a portfolio versus accumulating a portfolio.

I’m sure Taylor is someone who is in that position.
It is the right way of looking at it. Back in 20010 everyone was talking about how the 30 year bond had outperformed stocks over the last 30 years. If you had retired in 1980 would you care more that
a) Stocks were higher the long term treasuries in 28 out of 30 years, often by a lot
b) the bonds were higher by a little bit in 2 years

Obviously A.

Basically all these articles are result of end point selection

Lets look at the last 30 years
total stock market - 9.9%
Long bonds - 7.9
total bonds -5.8

I.e. stocks crushed bonds

Lets look at 15 years
total stock market - 9.5%
Long bonds - 7.2
total bonds -4.4

Again stocks crush bonds. It just so happens that 20 years right now lines up with a big crash in 2000. If you include the run up before the crash, stocks do well If you skip the crash stocks do well. If you only include the crash, stocks do poorly.
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Re: Did bonds really beat stocks over the last 20 years?

Post by jeffyscott »

SU-1977 wrote: Sat Sep 05, 2020 3:09 pm Are you saying the Yahoo chart https://finance.yahoo.com/chart/VUSTX#e ... J0In19fX0-
shows VUSTX returns without dividends?
Speculating that that may be the issue, it seems that they are clearly missing something. If you click to a 5 year comparison, for example, it appears to show cumulative return of 25.42% for VUSTX as of Aug. 31, but Vanguard has that 5 year annualized at 8.26% (or 48.7% cumulative). And for S&P the yahoo chart shows 78.37%, but 5 year return is 14.46% (which is about 96% cumulative).
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Re: Did bonds really beat stocks over the last 20 years?

Post by Tipro »

YRT70 wrote: Sat Sep 05, 2020 7:39 am For what it's worth, long term treasury did beat TSM over 20 years. https://www.portfoliovisualizer.com/bac ... ion2_2=100
Editing here. Lump yes long term treasury out performed, but DCA as if you had a paycheck and were contributing over the last 20 years, total stock market is up as of today. But long term treasury DCA also spent some good chunks of time ahead.

https://www.portfoliovisualizer.com/bac ... ion2_2=100
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Re: Did bonds really beat stocks over the last 20 years?

Post by Northern Flicker »

SU-1977 wrote: Fri Sep 04, 2020 10:09 pm Multiple articles including https://www.nytimes.com/2020/05/01/busi ... nd%20index state that over the last 10, 20, 30 years bonds destroyed S&P 500. When I compare charts, I see the opposite. For example, S&P 500 vs. Vanguard Long-Term Treasury Fund since Aug 1, 2000 shows 144% to 58% victory for S&P 500:
https://finance.yahoo.com/chart/VUSTX#e ... J0In19fX0-

Am I drawing charts wrong? I can not figure out how all the article authors arrive to the conclusion that bonds have been outperforming stocks. :confused
Using price charts for return comparisons distorts results significantly. The NY Times article just used a cherry-picked start date at the peak of the tech bubble 1/1/2000, and right before a deep bear market to make their point, which is not supported by more meaningful comparisons.
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Re: Did bonds really beat stocks over the last 20 years?

Post by Oicuryy »

SU-1977 wrote: Sat Sep 05, 2020 3:09 pm Are you saying the Yahoo chart https://finance.yahoo.com/chart/VUSTX#e ... J0In19fX0-
shows VUSTX returns without dividends?
Yes. Look at Yahoo's price data for the year 2000. The price is up about 50% since then which is what that chart shows.
https://finance.yahoo.com/quote/VUSTX/h ... equency=1d

^GSPC is the S&P price index. Use ^SP500TR for the total return index.

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Re: Did bonds really beat stocks over the last 20 years?

Post by alfaspider »

Jags4186 wrote: Sat Sep 05, 2020 10:58 am
alfaspider wrote: Sat Sep 05, 2020 10:49 am In the real world, almost all investors contribute over the course of decades. These specific date snapshots are thus pretty meaningless.
I think this is the wrong way to look at it. The reality is many people — especially folks on this forum — will spend as much time, if not more, spending down a portfolio versus accumulating a portfolio.

I’m sure Taylor is someone who is in that position.
Sure, but stopping contributions at a certain point is not the same thing as going all-in for a single day. There’s no question retiring at exactly the wrong time can be very bad for your portfolio. It’s just confirmation that sequence of returns risk is real.

It’s not really actionable. If long dated treasuries outperform stocks over the next 20 years, almost no portfolio will do well.
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Re: Did bonds really beat stocks over the last 20 years?

Post by atdharris »

LTT have performed well because rates have fallen over the last 30 years. When they're now at close to 0, it's hard for them to fall much futher / LTT to continue to outperform.
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Re: Did bonds really beat stocks over the last 20 years?

Post by willthrill81 »

atdharris wrote: Sun Sep 06, 2020 6:29 pm LTT have performed well because rates have fallen over the last 30 years. When they're now at close to 0, it's hard for them to fall much futher / LTT to continue to outperform.
Unless interest rates go negative, and the Fed has said so far that they aren't going to have a negative Fed funds rate, making that possibility seemingly very unlikely, it's mathematically impossible for LTT to repeat anything close to the returns they had since 1981.
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Re: Did bonds really beat stocks over the last 20 years?

Post by Fryxell »

Bastiat wrote: Sat Sep 05, 2020 8:47 am
Both of these factors tend to raise bond prices and are unique to the past 20 years. Past performance is not indicative of future results.
They also tend to raise stock prices.
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Re: Did bonds really beat stocks over the last 20 years?

Post by Fryxell »

Bonds have indeed outperformed for the last 20 years, and with much less risk:

https://www.portfoliovisualizer.com/ba ... ion2_2=100

It’s curious how when value stocks underperform for 5 years, people become convinced the value premium is dead. When international stocks underperform for 10 years, people become convinced US stocks are superior. But when US equities underperform treasuries for 20 years, their faith in the equity premium remains unshakable. They’ll make excuses about interest rates, even though interest rates affect stock valuations in a similar way. But at the same time, they have no faith in the equity premium for foreign stocks. It’s all very inconsistent and predictably irrational.
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Re: Did bonds really beat stocks over the last 20 years?

Post by Fryxell »

abuss368 wrote: Sat Sep 05, 2020 10:26 am Many of these articles are complete head scratchers. Who holds only long term bonds? Interest rates have been declining for 40 years.

That is huge.
My bond allocation is all long term. I’ve laughed all the way to the bank all these years that people have been saying that “interest rates can only go up.” They’ve been my best-performing investment.
Last edited by Fryxell on Mon Sep 07, 2020 1:45 am, edited 1 time in total.
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Re: Did bonds really beat stocks over the last 20 years?

Post by Fryxell »

Regarding the interest rate thing:

I personally don’t think it’s a likely scenario, but it is possible for long term interest rates to go negative and keep dropping, which could result in bonds outperforming stocks for years to come. This could happen if we had sustained deflation, as during the Great Depression. Do I think it’s likely? No.

But, I thought Bogleheads didn’t believe in timing the market, and didn’t think they could outsmart the market. The bond market may be pricing in the risk of deflation. So what do you know that the market doesn’t know? Why are you so sure? I’ve done research and I found articles from the early 2000s declaring that “interest rates can only go up.” They have been wrong for 15+ years.

It’s also curious how Bogleheads insist the market shouldn’t be timed, but when it comes to interest rates, that goes out the window—and they’ve been wrong for over a decade!
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Re: Did bonds really beat stocks over the last 20 years?

Post by MrJedi »

Price charts don't capture total return. Especially for a bond fund it makes a huge difference. You need one of those growth of $10,000 types of charts to include the dividends, bond coupons, etc.
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