The following letter is in response to our article last week, The Case for the All-Bond Portfolio. See Hildy and Stan Richelson’s response to this letter here.
Dear Editor,
Sure, an all bond portfolio works great when you initiate it during a period of double-digit nominal interest rates. The table below demonstrates that long-term Treasury bonds have meaningfully outperformed both the S&P 500 and the Wilshire 5000 for each of the periods listed (thru 2/23/2009).
Returns |
Wilshire 5000 |
S&P 500 |
LT Treasury |
AVG Equity |
||||
|
Annual- |
Total |
Annual- |
Total |
Annual- |
Total |
Annual- |
Total |
Jan 1 1980 |
9.84% |
1542.46% |
10.10% |
1652.94% |
10.30% |
1740.11% |
-0.33% |
-8.18% |
Jan 1 1981 |
9.08% |
1153.93% |
9.38% |
1247.47% |
10.82% |
1802.64% |
-1.59% |
-33.39% |
Jan 1 1982 |
9.58% |
1198.89% |
9.95% |
1312.06% |
11.27% |
1812.78% |
-1.51% |
-30.74% |
Jan 1 1983 |
9.25% |
1009.93% |
9.53% |
1079.48% |
10.25% |
1281.35% |
-0.86% |
-18.47% |
Jan 1 1984 |
8.72% |
817.98% |
9.04% |
880.81% |
10.62% |
1264.39% |
-1.74% |
-32.82% |
|
|
|
|
|
|
|
-1.21% |
-24.72% |
But what about today? Thirty-year Treasuries yield just 3.5%, while the average S&P 500 company has a return on equity of better than 8% (even in a depressed economy). The equity premium will reappear at some point. Otherwise our economy is kaput!
The Richelsons are typical rear-view mirror investors.
Charlie Smith
Fort Pitt Capital Group, Inc.
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