The equities-versus-bonds argument is likely to intensify over the course of this year. For many investors, the government bond market is uninteresting after yields spiked, causing pain for those who held them in the post-pandemic cycle.
When comparing stocks and longer-term bonds from a valuation point of view, specifically in the US market, I use Robert Shiller’s PE ratio for the S&P 500 Index. In the case of long-term government bonds, I prefer the real yield of the 20-year treasury bond because of its long duration. The effective duration of the index tracker, iShares 20+ Year Treasury Bond ETF, is about 16 years, and the weighted average maturity – length of time to the repayment of principal – is about 25 years and is there more compatibility to stocks’ payback period of about 20 years (the estimated forward price-to-earnings or PE ratio of the equal-weighted S&P 500 Index).
Due to its more accurate measurement of…
