Stocks Still Beat Bonds Over Time

If you have a long way to retirement, investing in stocks is likely to grow your nest egg faster than any other asset classes. One dollar invested in large-company stocks in 1926 would have grown to $ 5,317 in 2014 vs. long-term government bonds’ $ 135 and T-bills’ $ 21, according to Ibbotson SBBI Classic Yearbook.

Large-cap stocks averaged 10.1% return over the 88-year period. Long-term government bonds came in with 5.7% and T-bills managed 3.5%.

To be sure, bonds often outperform stocks in shorter periods. But in almost every 10-year period, stocks outperform.

The relationship has held true in recent times as well. In the past 20 years, the average U.S. diversified stock mutual fund has produced an average annual return of 8.35%, according to Morningstar Inc. data. U.S. taxable bond funds, including government and high yield corporate funds, returned an average annual 4.96%. The average balanced fund, which invests in both stocks and bonds, came in with 6.99%.

The top performing stock fund of the past 20 years is Wasatch Micro Cap . The $ 284 million fund has returned an average annual 13.91% for investors in the past 20 years, 9.54% in the past 15 years and 5.06% in the past 10 years.

The fund, struggling with other small-cap funds in the stock market this year, is down 3.5% year to date.

The fund has been managed by Daniel Chace since 2004.

Recent holdings include LGI Homes (NASDAQ:LGIH), Ultimate Software Group (NASDAQ:ULTI) and Tyler Technologies (NYSE:TYL).

LGI Homes has an IBD Composite Rating of 99, the highest possible for this rating, which incorporates fundamental and technical factors. The Texas-based homebuilder’s earnings have risen at an 80% annual pace the past three years and are expected by analysts to rise 75% his year and 25% next year. The stock is extended from classic buying areas.

Ultimate Software has a Composite Rating of 98. Earnings have risen at a 44% annual clip the past three years for this designer of web-based payroll and workforce management software. Profit is seen rising 18% this year and 24% next year.

The thinly traded stock broke out of a base-on-base chart pattern on Oct. 7, but has yet to make sustained progress.

Tyler Technologies’ earnings have risen at a 29% annual clip the past three years and are expected to climb 22% this year and 29% next year. The stock, also thinly traded, is extended beyond its most recent optimal buy point.

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