Let’s start with the undeniable, incontrovertible fact: Risk and reward are inextricably linked. This is why stocks have returned almost double what bonds have returned over the last seven decades in the post-WWII era. This is in both nominal and real (adjusted for inflation) terms.
CNBC has given me essentially free rein to tell my truth in this new video series I’m doing for them, and it’s been an amazing experience so far. I’ve gotten tons of great feedback for the first one, where I explain the difference between the economy and the stock market. I presented all the evidence you need to see that economic predictions do not add up to stock market prescience even when you get them right! People who sell their ability to make economic calls despise this message, but it’s the truth.
This week, episode two came out, and this one has the potential to piss even more people off. That’s how you know it’s real talk…
Stock investors are taking more risk of drawdowns and volatility than investors in Treasury bonds, and the market’s way of compensating them for that risk is long-term returns that are substantially higher. But they’re not free. Investors must endure much greater uncertainty in the stock market as the price of this outperformance.
Wall Street makes the bulk of its money peddling the illusion that you can have all of the upside in a given asset class / strategy / investment portfolio while being exposed to only limited (or even zero) downside. The willing acceptance of stock market volatility is the only path for most investors for being able to pay for a comfortable retirement decades from now. And with increasing lifespans, retirement has taken on a whole new definition – young adults today could end up living three or even four decades after their career has ended. So the real risk they face is not watching their stocks fluctuate, it’s running out of money.
Please watch and share the above video, and you can read the accompanying article I wrote at the link below.