STRS ASSET ALLOCATION: Stocks v Bonds ???

From Mario Iacone, May 30, 2009

Recent research, last week or so, by Rob Arnott, has shown that Bonds have outperformed Stocks in the last 40 Years. This has caused quite a stir on Wall Street. Rob Arnott’s research has been widely discussed on financial media outlets such as CNBC, Bloomberg, Barron’s, Marketwatch, and Barron’s. Use GOOGLE, type Rob Arnott to read and view all the discussion.

STRS MEMBERS should urge STRS Investment Department to research and consider increasing their percentage of Treasury and government bond assets as one means of reducing the effect of huge short term stock market losses on our pension fund.

Stocks Losing the Long Run to Bonds - WSJ.com:

"Two brutal bear-markets for stocks within a decade and a stunning bull run for government bonds is challenging the gospel that stocks will always beat bonds if investors just hold on long enough.

Now, Rob Arnott, a veteran financial analyst and market pundit, has lobbed the academic version of a Molotov cocktail at one of the most sacred tenets of investing....

'For the long-term investor, stocks are supposed to add 5% a year over bonds. They don't,' Arnott, founder of investment consultants Research Affiliates and former editor of the Financial Analysts Journal, wrote in a paper published in the latest Journal of Indexes.

'Indeed,' Arnott contended, 'for 10 years, 20 years, even 40 years, ordinary long-term Treasury bonds have outpaced the broad stock market.'

and later:

"Through the end of April, the 10-year annualized return on the S&P 500 was negative 2.5%, according to Standard & Poor's.

Meanwhile, an index fund tracking long-term U.S. Treasury bonds, Vanguard Long-Term Treasury Fund, gained 7.2% annualized over the same period.

"People fret about our 'lost decade' for stocks, with good reason, but they underestimate the carnage," Arnott wrote.

Arnott's research shows that starting at any point from 1969 through the end of 2008, an investor in 20-year Treasurys who continually rolled over into the nearest bond and reinvested the income would have come out ahead of the S&P 500."