Finance: Stocks Vs Treasury Bonds

Finance: Stocks Vs Treasury Bonds

Length: 510 words (1.5 double-spaced pages)

Rating: Excellent

Open Document

Essay Preview

More ↓
Historically speaking, stocks have been found to be no more risky than Treasury bonds. Over the past twenty years vast research has been done on this subject. Jeremy Siegel of the University of Pennsylvania’s Wharton School stated that, “The safest long-term investment for the preservation of purchasing power has clearly been stocks, not bonds.” Since the mid nineteen twenties, company stocks have average annual returns close to 11%, while on the other hand, Treasury Bonds only return with a little over 5%.
     Currently stocks are on the rise. Since 1982 the reason for this is the declining risk premium. The return, or “risk premium,” that is required is much less. This is for several reasons. Investors have realized not to be so fearful of the great unpredictability of stocks. Instead of dropping stocks in the short run, investors are learning to hold out for the long run to see huge benefits.
Secondly, Americans are now keeping stocks in accounts that require long-term holding, such as retirement accounts. Also, businesses are becoming much more efficient and the chance of undergoing devastating turn-arounds in a recession are much less. The tax environment is more generous, foreign threats have ceased dramatically, and the government management has vastly improved.
The bottom line is that the risk of investing stocks is much less than it ever has been before. The level of the risk premium is heading towards zero, while currently holding at 3%. That 3% is much better than the historical average of 7%.
James K. Glassman and Kevin A Hassett, authors of the book, “Dow 36,000,” claim that the prediction of the Dow reaching 36,000 is not out of the realm of possibilities. If the earnings grow in the long term at the same rate as the GDP and treasury bonds are below 6%, then it is very possible for the Dow to hit a level of 36,000. One critic of “Dow 36,000,” Burton G. Malkiel, stated that the rise in stocks that has been occurring is the beginning to an adjustment that “will only be complete when stocks and bonds are priced to offer equivalent returns, and that implies a level of 36,000 for the Dow today with a price earnings multiple of 100.”
So the question remains at whether the authors of “Dow 36,000” are correct or incorrect about the arguments and predictions that they make in their book. They are correct in what they predict in their book, but they need to make sure to not lead some not-so-experienced investors down the wrong road of deception.

How to Cite this Page

MLA Citation:
"Finance: Stocks Vs Treasury Bonds." 22 Apr 2019

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

A Brief Note On Bonds And Bonds Essay

- Stocks and bonds can play an important role in personal finance as a way to diversify a portfolio. While bonds are much safer than stocks they still carry risk, albeit typically much less. Before any person invests they should have an emergency fund and be able to meet all current financial obligations, it is not advisable to borrow money to invest with, especially using credit cards considering typically high interest rates. Bonds are generally safer due to having a maturity date, paying interest and are payable upon an institutions failure before stocks are repaid....   [tags: Investment, Dividend, Finance, Bond]

Research Papers
968 words (2.8 pages)

Essay about Federal Reserve; Bonds Versus Stocks

- Federal Reserve: Bonds verses Stocks The Federal Reserve uses treasury bonds, gold, and notes or bills to support the nation's economy. The Federal Reserve has traditionally conducted open market operations through the purchase and sale of government bonds. Could the Federal Reserve without drawbacks conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange. No, I do not think the Federal Reserve could conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange....   [tags: Economics Finance]

Free Essays
909 words (2.6 pages)

Essay about Why Invest in Bonds?

- Why Invest in Bonds. Bonds are thought to be an investor's idea of a safe investment. When the stock market is in trouble, investors take their money from the equity market and put it into bonds. Also, investors feel bonds are perfect for a portfolio where they require some sort of fixed income. A bond's coupon payment would work nicely in this case. However, research may lead us to a different story. Is a bond a better overall investment during these two situations listed above, and many others like them....   [tags: Market Economy Money Essays Stocks Finance]

Research Papers
2859 words (8.2 pages)

Essay about Bubble, Bonds, And Troubles

- Bubble, Bonds, Boils and Troubles Bubble, Bonds, Boils and Troubles The world 's central banks face increasing problems when it comes to planning fiscal policies in today 's climate of financial uncertainties, lower gross domestic production levels, or GDPs, and artificially high bubbles that seem to be artificially upholding inflated stock values. recently published a report that examines these issues based on more than 30 years of Bubble Finance policies at the U.S....   [tags: Monetary policy, Federal Reserve System]

Research Papers
822 words (2.3 pages)

Why invest in bonds when there are so many other options? Essay

- Why invest in bonds when there are so many other options. Since 1999, the economy has been in a downward trend. The majority of people who had invested in the stock market now known as the great stock bubble or fraud bubble were given a false sense of security and they felt the market would just keep climbing. Were there signs that investors could have looked for to predict the economic downturn. If investors had looked for the signs, maybe they could have changed their direction of investment. This paper will investigate the characteristics of bonds and see if the bond market has proven to be a safe haven for those who were wise enough to invest in it....   [tags: Argumentative Persuasive Finance Essays]

Research Papers
2428 words (6.9 pages)

The Decision For Make Investment Are Primarily Directed By The Motivation Of Netting A Return

- The decision to make investment are primarily directed by the motivation of netting a return. These decisions always contain a balance between risk and return. There are many types of marketable securities, bonds are a specific type which issue debt as a way to raise funds as opposed to providing ownership as with stocks. Bonds are then categorized by corporate bonds and treasury bonds. Government Treasury Bills (T-bills) are government backed short-term debt obligations with a maturity of less than one year....   [tags: Bond, Investment, Bonds, Revenue bond]

Research Papers
996 words (2.8 pages)

Essay on How Does Credit Card Debt Affect Your Personal Wealth?

- Credit card debt is what’s known as unsecured consumer debt. Card debt is not necessarily collected through the use of a credit card. Debt can be accumulated from transfers, such as transferring money to make a payment or to another account. This can get you in a cycle of revolving debt meaning, what you owe can spiral out of control. Many people owe money because of the current financial situation of the U.S Economy. Credit card has a major impact on one’s personal wealth. People who have an asset have personal wealth; some examples of an asset are your house as well as your land....   [tags: Finance]

Research Papers
1265 words (3.6 pages)

Essay on The Significance of Stocks in Personal Finance

- Investing in stocks involves owning part of a company’s equity which effectively enables the shareholder to receive a portion of the company’s earnings and assets in form of dividends. Stocks are generally categorized as either common stocks or preferred stocks whereby common stock allow investors to vote on key issues but do not guarantee of dividends (Markowitz 78). Preferred stocks on the other hand do not provide voting rights but assure stockholders of dividend payments. Investing in stocks offers investors comparatively high returns relative to treasury securities but the investments also have high inherent risk....   [tags: investment, dividends, earnings, assets]

Research Papers
1651 words (4.7 pages)

Time Value Of Money Essay

- Time Value of Money One might know that time is one of the most valuable assets in our lives. In the financial world the value of money is linked to time, primarily because investors expect progressive returns on their cash over periods of time, and they always compare the return from certain investments with the going or average returns in the market. Inflation on other hand erodes the purchasing power of money causing future value of one dollar to be less than the present value of a dollar. This paper will examine time value of money and the applications that determine successes or failures....   [tags: Business Finance]

Free Essays
1709 words (4.9 pages)

Bond Markets Essay

- Bond Markets A bond is a debt security, or basically a loan, that an investor makes to a corporation, a government, an agency, or municipalities. In return for up-front cash, a corporation or government promises to make specific payments to a bondholder on specific dates. The bondholder can not only expect fixed payments but also the principle repayment when the bond reaches its maturity date (The Bond Market, 2002). A bond is considered a fixed-income security because the investor knows the exact amount of cash that will be paid back if the bond is held until maturity....   [tags: Finance Financial Investment Investing]

Free Essays
935 words (2.7 pages)

Related Searches

“Dow 36,000” correctly explains that historically the risk premiums have been too high.
At the same time critics also nag at the fact that it is hard to believe that in the long run stocks aren’t any riskier than government bonds. There are also many factors that do definitely lower the risk premium including free markets, stable economy, and the end of the Cold War, but at the same time no one can predict what will happen in the world economy at any moment.
Return to