Are Stocks What You Should Worry About?

With a 10+ year bull market behind us, Coronavirus concerns, and a change in Washington, I hear many concerns about how all this is going to impact the stock market. I think the question being asked is “Is now a good time to sell?”

I really don’t know. Stocks always have and always will confuse us over the short-run and always have and I believe always will pleasantly surprise us over the long-run.

However, while everyone is concerned about the stock market, not many are paying attention to the concerns in the bond market. The most popular benchmark, the 10-year US Treasury, is currently yielding only 0.85% annually.

Let’s do some math

Annual Rate for 10-year: 0.85%

Hypothetical Inflation Rate: 2%

Real Return: -1.15%

An investor in this situation loses 1.15% annually in real terms over the next 10 years. Despite this, many are considering selling stocks, which currently pay dividends of 1.8% (S&P 500), with the possibility of additional capital gains (or loses), and buying bonds, which only pay .85% (10-year). Perhaps stocks are a necessary part of your portfolio in this environment?

All that said, bonds still play a critical role in most portfolio’s – providing some yield over cash and protecting against short-term volatility while making withdrawals. However, I don’t think it’s time to throw in the towel on stocks despite the obvious short-term risks.

Thank you for reading,

Alex

This blog post is not advice. Please read disclaimers.