Over the 149 years to 2020, equities (in the US) outperformed US government bonds in: 63% of rolling one-year periods, 68% of rolling three-year periods, 73% of rolling five-year periods, and 86% of rolling ten-year periods.
The job of a professional active asset allocation fund manager is to – amongst other things – shift capital back and forth between equities and bonds (and other asset classes), in the hope that they’ll, for example, avoid equity market drawdowns by shifting their funds’ money into bonds before the drawdown happens. Their ‘hit rates’ – i.e. the proportion of decisions they get right – is typically in the range of 45-55%. Now, to be clear, an active asset allocation manager doesn’t need to get much better than a 60% hit rate in order to outperform; what also matters is how much money they make when they get it right, versus how much money they lose when they get it wrong, which is all about discipline and risk management.
However, think about your own equities vs bonds (risky asset vs safe asset) decision. If your time horizon is at least one year, by just holding equities and forgetting about bonds, statistically you’re likely to outperform a professional fund manager (all other things equal). If your time horizon is much longer than that, your hit rates are very promising by just holding equities – the ultimate return-generating asset – and forgetting about bonds.
Of course, this comes with a health warning: you need to be prepared to stomach the rollercoaster that comes with owning stocks. So, make sure you’ve considered your risk tolerance, and particularly your time horizon, carefully. Bonds play an extremely important role in lower risk, capital preservation portfolios, for example in pre- or post-retirement portfolios.
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To the pound 