"Stocks for the long run"

What is the chance that excess returns from stock market seems like one of those old inefficiencies that disappeared like value, momentum, etc.
If we get another 2 years of no positive returns from here, that will be two DECADES of stocks under performing bonds worldwide. I guess that will put the stocks for the long run concept away for good.

Seems like not long ago we were having “stocks are currently near bubble valuations” narratives.

At least stocks have a book value.

Hold in cash or short-term equivalents and you won’t lose money. You won’t make money either. If you can’t stomach price volatility then feel free to sell your stocks to someone else. I like it when the stuff I want to buy goes on 25% discount.

Exactly 20 years ago, in 1998, the SPY etf was 123.31. Now it is 247.17. So that is a compound return of 3.5% before dividends. The average dividend yield during this period was around 1.8% , for a total return of 5.3%.

The average 20 year 10-year yield during this time is between 3.8%.
So over a 20 year period, stocks beat bonds by 1.5% in the US.

The theoretical risk premium is high but in reality (20 years of history) it has been 1.5%. Would you put 100% of your cash in stocks if the real implied risk premium over risk-free rate is ONLY 1.5%?

John C. Bogle, founder of Vanguard Group estimated 4% returns for stocks, 3% returns for bonds over the next decade (October 2017)
Some other experts foretasted in the -4 to 6% range over the next decade.

This is an interesting read.

https://www.morningstar.com/articles/842900/experts-forecast-longterm-stock-and-bond-returns-2.html

Instead of SPY, how about looking at RSP? Since RSP started in 2003, we’re going to have to rely on P123’s extension to cover the entire 01/02/1999 - 12/21/2018 simulation timeframe. During that period, SPY’s annualized return was 5.45% and RSP’s was 8.03%. That’s not too shabby.

10 year bond is not risk free. I’d say there is substantial risk if you are buying a 10 year bond right now. I’d compare to 1 month treasury bill. I’ll take 5.3% over 3.8% any day, even if there are years of 30% drawdowns. The earnings yield on bonds is usually lower than stocks. This is true today. Bogle may be right. I understand if volatility upsets some people but in the long run it is really not a big deal unless you are on the verge of retiring on a fixed income? I guess maybe I am biased toward volatility in that it presents substantial opportunities.

Bonds have an absolute ceiling when it comes to returns and lately, we’ve been scraping against that ceiling, which is defined by a benchmark interest rate of zero. (I presume by now, unlike a couple of years ago, we can agree rates won’t keep falling through and below zero as bonds continue to behave as they did for much of the times since 1982 and understand that things like TLT are trading vehicles at best and disasters at worst.) If ever there was a time to embrace the adage that past performance does not assure future outcomes, now is it since we know with 100% certainty that bonds cannot perform as that have in the past.

Stocks, on the other hand, have no ceiling.

Especially when you take into account nominal return vs. real return after adjusting for inflation.