It is not the first time that I have been questioned why I have such a high (35%) allocation of fixed income in my portfolio.

I just happened to come across an interesting article (membership required or check this cached page) over at MarketWatch.com. The article talks about the percentage of time that stocks have underperformed riskless Treasury bills over various time lengths in the US.

Holding Period         % of time that stocks outperform T-Bills (1802-2002)

1 yr                           61.5%

2 yr                           65.3%

5 yr                           74.0%

10 yr                         80.1%

20 yr                         94.5%

30 yr                         97.1%

This is a rather interesting table. If you hold stocks for a 10 year period, there is a 20% chance that a Treasury bill portfolio would outperform your stock portfolio.

How long must one be prepared to invest in stocks to be confident that they will outperform Treasury Bills, using the 95% confidence level typically used by statisticians? The sobering answer that emerges from Siegel’s data: More than 20 years.

This is data from the US. In the book “Protect Your Nest Egg” by Kirzner and Croft, they showed a table that bonds actually outperformed equities over the last 15 years in Canada. They show that the average fund return for Cdn Balanced was 7.54%; Cdn Bond was 8.45% and Cdn Equity was 7.92%.

Stocks really are for the long term! And that’s ok, because I still have a long way to go before retirement!

Make sure that your asset allocation matches your investment time horizon.