Personal Wealth Management / Market Volatility

Fisher Investments Founder Ken Fisher Debunks: Bonds Are Safer Than Stocks

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher debunks the common myth that bonds are safer than stocks. Ken says bonds can be safer in the short term, but over the long term stocks deliver a materially better outcome for investors relative to bonds.

Ken notes that investing in bonds is not as risk-free as some may think. In periods of higher inflation, like the current period, bonds lose value as interest rates rise. Looking at rolling historical returns, any period beyond three years tends to favor stocks. Looking at longer periods such as 20 or 30 years, Ken says the evidence to own stocks is overwhelming. Ken believes that most people invest to achieve long-term goals and should therefore have healthy exposure to stocks rather than a primary focus on bonds’ short-term stability.

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Title screen appears, “Fisher Investments Founder Ken Fisher Debunks: Bonds Are Safer Than Stocks.”

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A man appears on the screen Wearing A navy suit, sitting in front of a fireplace.

He begins to speak.

A banner identifies him as Ken Fisher, Executive Chairmen and Co-Chief Investment Officer, Fisher Investments.

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Ken Fisher: Most people tell you conventional wisdom says and it's not true that bonds are safer than stocks. That's only true if you're thinking of short term.

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On the white screen a title appears “DEBUNKERY” with subtitle “Seeing Through Wall Street’s Money-Killing Myths”

Ken Fisher Appears Back again in the same position.

ken fisher doing hand gestures time to time explaining.

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Ken Fisher: If you're investing in stocks and you're thinking of short term, you might as well be thinking of Las Vegas. The fact is stocks shouldn't be used as short-term bets. Stocks are about a longer-term vision of capturing the benefits of capitalism as it morphs its way through problems to a better material outcome for people globally. Pretty simple concept. A concept not so readily embraced always by everyone. If we look historically a very long history of bond returns parallel very long history of stock returns, and we can see that the longer you look at rolling time periods, the more it becomes true that stocks are safer than bonds. Now, let me step back from that for a second.

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The screen changes to a white background with a data-grid showing the average total return over 20-years Rolling Periods. It appears that the stocks outperformed bonds by a 3.4-to1 margin. Screen changes back to fisher after few seconds.

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Ken Fisher: If you look at rolling 20-year periods because you're 50 years old and you expect to live at least until you're 70, it becomes overwhelming. If you actually thought, you'd live until you were 80 and look at rolling 30-year periods, it's absolute. If you look instead just at rolling three-year periods, it's mostly true that stocks are less risky than bonds. What people forget is, and they forget it this year, is that when you have rising inflation, bond prices tend to fall, reducing the total return and making the total return on bonds negative, which is what's happened so far this year. This year stocks have gone down more. But what people miss is that if inflation is not somewhat transitory and remains, the inflation numbers that we're seeing now are very high relative to a 3% US government ten-year bond rate.

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On the screen, 2 charts appear, they are of a tree-year rolling returns: Bonds and stocks.

The two charts are to compare the US 10-years Treasuries to the US stocks performance over the years.

Screen is back to Fisher after few seconds.

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Ken Fisher: And to the extent that's true, you would expect to see bond prices going up excuse me, bond prices falling, interest rates going up. And as that would happen sequentially, negative bond returns and if you look at the longer-term history, let's say from 1925 to 1980, you had overwhelmingly most years where stocks rose two thirds plus at the time, while most years bonds generated negative returns and particularly negative returns inflation adjusted.

That inflation effect directly impacting bond prices is one where in a period where rates are going up because inflation is pulling them up, does not get incorporated into a positive impact for bonds the way it does for stocks. Because stocks reflect businesses morphing to adapt to the changes that they're confronted with over time, albeit not necessarily immediately, and with interim disruptions that you could otherwise call volatility.

Ken Fisher: So, I want to reiterate, in the short term, bonds, very short term, bonds are safer than stocks. But in the longer term, as you move out 3 5 10 15, 2030 year rolling periods, stocks get increasingly safer than bonds, starting with three-year returns on average. And as that becomes true, you say to yourself, how long are you holding these investments for and why? What's your investment time horizon. And I think very few people other than their jitteriness actually have short term time horizons. Almost everyone that I talk to when I ask them, what's the primary purpose of your money? What are you investing for? Why are you doing it in the first place? They're thinking of their longer-term future.

Ken Fisher: The most common phrase I ever hear is, well, the purpose of my money is to take care of me and my spouse the rest of our lives. Maybe leave some money to offspring, maybe leave some money to charity. We've got some other interests that we want, but it's to take care of ourselves over the longer term. Then you ask, well, so how long do you think you're going to live? And they tell you. And the reality is, most people live a little longer than they think they're going to. Obviously not everyone, but most people do. People who get up into the ages of 50 and 60 and 70 tend to live longer than they think they will, longer than they thought they would if they approach those ages, partially because medical improvements keep helping them live longer. But in all of that, if you have a longer-term time horizon and you've got a longer-term investment program, stocks actually end up being more consistent, generating higher returns. Bonds actually end up being riskier. Thank you for listening to me.

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A half white half red screen appears.

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Ken Fisher: I very much hope you enjoyed this video as part of my series on debunking Common Market myths.

To watch more videos like this, click the link on the screen and make sure to subscribe to Fisher Investments YouTube channel.

Thanks so much for listening to me.

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A Series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of fisher investment or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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