Stocks and Bonds

Gary North

This section is for people who are still undecided between stocks and bonds, foreign and domestic.

The American stock market peaked in March of 2000. If we use to S&P 500 index, the peak was 1527. In today's money, that is about 2220. That was on March 24, 2000. Check today's price here. It has reached 2700, but it fell back. Subtract 2220 from (say) 2650. That is 430. Divide 430 by 2220. That is 0.19. In short, after 18 years, investors got under 20% on their investment. To this, add dividends in the range of 2% a year. Any dividends received were taxed as ordinary income. Subtract fund expenses. Also, the nominal increase from 1527 to 2650 will be taxed at the capital gains rate. Over 45% of this increase was inflationary. Check the inflation calculator of the Bureau of Labor Statistics here.

Conclusion: "Buy and hold the S&P 500" was a sucker's game.

I called the high water mark in March 2000. You can read what I wrote here.

Then there is the beloved story of the American stock market's supposed gain of 7% per year. That much-heralded fairy tale got blasted by the twenty-first century.

I received the following e-letter piece of information in a widely read free e-letter:

But our main focus will always be about stock market investing. Why? Because nothing has performed better than equities over the long haul. Not cash, not bonds, not real estate, not gold, not collectibles, nothing.

Anyone who believed this in 2000 and left his money in a no-load U.S. stock index fund -- the smart investors' strategy -- has lost money. He should have had his money in gold and silver, real estate, and bonds.

This old line about the profitability of American stocks has been dead wrong for almost eight years. Yet the perma-bulls keep promoting this story as if nothing had happened to refute the theory since March of 2000. They simply will not learn from experience. They will never change their story.

Then there are bonds, which usually move up when stocks move down. What about corporate bonds? What about government bonds? Which maturities? Which governments?

What effect will Federal Reserve policy have on American stocks and bonds?

These and other topics are covered here.