"When interest rates are higher, investors can earn more from relatively safe investments like government bonds. At 4.5-5.0%, bonds become real competition for stocks."
However, there is a price you pay for safety. I remember at the beginning of 2023, people were saying there was no point of investing in risk assets given that they could get 5% risk free. Back then, everyone was predicting a recession based on the unprecedented speed of rate hikes.
That year, the S&P went up 24%. Man plans, God laughs.
From a returns perspective, all investors should consider absolute return AND relative return. 5% is nothing compared to SPX 25%. But 5% is also significantly better than 0%, which it was when it was the return-free risk. Safety is safety tho. All depends on time horizon, risk tolerance, personal preferences.
"When interest rates are higher, investors can earn more from relatively safe investments like government bonds. At 4.5-5.0%, bonds become real competition for stocks."
However, there is a price you pay for safety. I remember at the beginning of 2023, people were saying there was no point of investing in risk assets given that they could get 5% risk free. Back then, everyone was predicting a recession based on the unprecedented speed of rate hikes.
That year, the S&P went up 24%. Man plans, God laughs.
From a returns perspective, all investors should consider absolute return AND relative return. 5% is nothing compared to SPX 25%. But 5% is also significantly better than 0%, which it was when it was the return-free risk. Safety is safety tho. All depends on time horizon, risk tolerance, personal preferences.
Good stuff, thx! 🙌
Appreciate that Nick !
Really great blog tonight.
Thanks Stephen! You find bonds compelling here too, or no?