If you’re a long-term investor, you may have lost a good chunk of your wealth in the market’s crash. It’s because of this that the buy-and-hold mantra is softening to a whisper, and another strategy to use in conjunction with exchange traded funds (ETFs) is supplanting it.
The S&P 500 has declined about 25% since January 2000 (11% when dividends are factored in). The Barclays Capital Index of Treasury bonds has delivered 85%, including capital gains and interest, and an index monitoring 30-year Treasuries produced a total return of 116% in the past 10 years, writes Michael Mackenzie for The Financial Times.
Analysts believe this “lost decade” for equities came after the bull market of the 1990s. Alan Ruskin, strategist at RBS Securities, sees that the “sheer volatility was very hard for buy-and-hold investors to stomach.” Stocks weren’t able to meet the overly optimistic profit expectations that ended in early 2000, which lead to reduced interest rates. [Why buy-and-hold is dead.]
The interest rate cuts and easing of inflationary fears bolstered government bonds. The current 10-year Treasury yields is around 3.5% is quite low as compared to the February 2000 10-year note with 6.5%. Ruskin thinks that bonds, which are at relatively low yields, may not beat out equities unless a round of deflation emerges.