I’ve posted Entry #25 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Stocks Are Less Risky Than Bonds.
Juicy Excerpt: Stocks can be more risky than bonds. Obviously there was huge risk when prices were so high that the likely long-term stock return was a negative number. But the risk of stock investing is a voluntary risk. It’s not that stock investors collectively take on more risk than the risk that is taken on by bond investors collectively. Stock investors who ignore valuations take on astronomical levels of risk. But stock investors who take valuations into consideration can easily keep their risk below the level taken on by bond investors.
It is not stock investing that is risky. It is valuation-uninformed stock investing strategies that are risky. The risks of stocks can be largely avoided by those willing to give consideration to the effect of valuations on long-term returns. It is much harder for investors to avoid the risks of bonds, since inflation is unpredictable and constitutes the biggest risk for bond investors. For the valuation-informed investor, bonds are more risky than stocks.