New numbers, same story: diversification works!

For most time periods, stocks have a higher return than bonds. But occasionally there are time windows, even long ones, when bonds outperform stocks. Notice that you have to carefully pick your time window to get this conclusion. Add a few years at the front end, or take them off the back end, of your sample and the conclusion is overturned.

The investment strategy that comes from this new information is old indeed — simple diversification. If you diversify your portfolio as recommended in my book, you get the benefit of having bonds in your portfolio. You have less in bonds when you’re young and more when you’re old. And you avoid “flavor-of-the-month” investing in which you change strategy to follow the latest hot asset.

If you had followed the “Dow 36,000” strategy when it was hot, you’d have missed the excellent returns on bonds that are now being reported. And if you now concentrate on bonds to the exclusion of stocks, you’re setting yourself up for a big disappointment. My best advice: get diversified, and stay diversified.