Long Term Returns
The following chart shows the average actual returns (after inflation) of stocks/bonds/cash in the U.S.
1. Stocks have the best return in the long term, but stocks also have the biggest fluctuations (risks).
2. You could lose money on bonds! This is due to interest rate risk (when interest rate goes up, bonds' price goes down) and inflation risk (bonds have fixed interest rates, when inflation rate goes up, the actual return suffers).
3. When the investment frame is long enough (e.g. 20 years), stock is the only investment category that could generate positive return. Your patience will be rewarded!
In our next blog post, we will discuss what will be the optimal mix of stocks and bonds.