One of the greatest fallacies of investing is the dependence on historical data and returns for the basis of investment decisions. You will often hear investors saying, “over the long-run stocks always beat bonds!” Recently, the opposite has been said because bond returns have trumped stocks in the last 30 years. This must mean that bonds are better investments than stocks right? These are false conclusions. What really matters is what is going to happen in the future, not what happened in the past.

With regards to the latter observation, that bonds have beaten stocks over the last 30 years, my response is the following: