2009 Critical Issues Forum

I've been thinking about... the cult of equities and the new reality




Many investors saw their core beliefs turned upside down in 2008/09 as bonds outpaced stocks over 10, 20, 30 and 40 year periods. Longer term analysis shows other shockingly long spans in which stocks and bonds have delivered the same return. Where's the 5% return premium that's our birthright? How long do believers in "stocks for the long run" have to wait? This is not to say stocks will underperform bonds over the next 10, 20, 30, or 40 years. But the "cult of equities" is dangerous. The price always matters, and time cannot heal all blunders. Investors must shake off their automatic reliance on equities by examining the many out-of-mainstream fixed-income asset classes, some currently offering the same 2.5% long-term historical risk premium of equities but with more diversification and less volatility.



Robert Arnott

Chairman & Founder

Research Affiliates (US)

RealIndex Investments