Are Stocks Still Worth the Risk in Retirement?
For decades, investors have followed a simple principle: stocks offer higher long-term returns because they come with higher risk. The extra return investors expect to earn for taking on that risk is known as the risk premium.
But what happens when that premium starts to disappear?
In today’s market environment, retirees and pre-retirees are facing a question that hasn’t been this relevant in years: Is the additional risk of owning stocks still worth it when fixed-income investments are offering attractive yields?
With Treasury bonds, CDs, fixed annuities, and other conservative investments offering yields of 4%, 5%, and sometimes even higher, the gap between expected stock returns and guaranteed or relatively stable fixed-income returns has narrowed dramatically.
That doesn’t mean investors should abandon stocks. However, it does mean retirement investors may need to take a fresh look at their portfolio allocations, income strategies, and overall risk exposure.
What Is the Risk Premium?
The risk premium is the additional return investors expect to receive for taking on the uncertainty of the stock market rather than investing in safer alternatives.
Historically, stocks have outperformed bonds and cash investments over long periods. Investors accepted the market’s volatility because they were compensated with significantly higher expected returns.
For example, if a safe investment earned 3% annually and stocks were expected to return 8%, investors were receiving a 5% risk premium for accepting market fluctuations.
That premium made the decision relatively straightforward.
Today, the situation looks much different.
With many fixed-income options offering yields between 4% and 6%, the difference between stock returns and safer investments has become much smaller. As a result, investors must carefully evaluate whether the potential reward still justifies the additional risk.
Why the Risk Premium Has Shrunk
Several factors have contributed to the shrinking gap between stocks and fixed-income investments.
1. Higher Interest Rates
Over the past several years, interest rates have risen significantly. As rates increased, Treasury bonds, CDs, money market funds, and fixed annuities became far more attractive.
Investors who once struggled to earn meaningful income from conservative investments can now lock in yields that rival historical stock market expectations.
2. Strong Stock Market Performance
The stock market has experienced substantial gains over the past several years. Major indexes have reached record highs, and many investors have seen significant portfolio growth.
While that’s good news, rising stock prices can reduce future expected returns. When valuations become elevated, the amount of future growth available may be lower than investors have become accustomed to.
Simply put, stocks become more expensive, which can make future returns less attractive relative to their risk.
3. Earnings Yield vs. Treasury Yield
One method analysts use to evaluate stock market value is comparing the earnings yield of the S&P 500 to the yield of the 10-year Treasury bond.
Earnings yield measures how much profit companies generate relative to their stock prices. Treasury yields represent the return investors can receive from a government-backed investment that is generally considered among the safest available.
Historically, earnings yields were significantly higher than Treasury yields, creating a meaningful advantage for stock ownership.
Recently, that advantage has narrowed considerably.
What This Means for Retirees
If you’re accumulating wealth over a 30- or 40-year career, temporary market declines may not be particularly concerning.
Retirement is different.
Once you begin withdrawing income from your portfolio, the sequence and timing of returns become critically important.
A major market decline early in retirement can create lasting damage to a retirement plan because you’re selling investments while their values are depressed.
This is why retirees should pay close attention to how much of their portfolio is exposed to market volatility.
When the additional reward for owning stocks becomes smaller, the value of stable income sources becomes more important.
The Importance of Portfolio Buckets
Many successful retirement income strategies use a bucket approach.
Rather than viewing retirement assets as one large account, investments are divided into different categories based on when the money will be needed.
Short-Term Income Bucket
This bucket typically contains:
- Cash
- Money market funds
- Short-term bonds
- CDs
- Treasury securities
- Fixed annuities
The purpose of this bucket is stability. These funds are intended to provide income during retirement without being exposed to significant market risk.
Intermediate Bucket
This portion of the portfolio may include:
- High-quality bonds
- Balanced investments
- Income-focused assets
This bucket serves as a bridge between stability and growth.
Long-Term Growth Bucket
The growth bucket is typically invested in stocks and other growth-oriented investments.
This money may not be needed for years or even decades, giving investors time to ride through market volatility.
When the risk premium shrinks, reviewing the balance between these buckets becomes increasingly important.
Have Recent Market Gains Changed Your Allocation?
One issue many retirees overlook is that strong stock market performance can quietly alter portfolio allocations.
Consider an investor who established a portfolio with 60% stocks and 40% fixed income several years ago.
If stocks dramatically outperform bonds, that portfolio may eventually become 70% stocks and 30% fixed income without the investor making any changes.
In other words, the portfolio becomes riskier simply because stocks appreciated faster than the fixed-income portion.
This is one reason periodic rebalancing is so important.
Rebalancing helps restore the original risk level and prevents investors from unknowingly taking on more market exposure than intended.
The Hidden Impact of Investment Fees
Another important factor in today’s environment is fees.
Many investors focus only on gross returns while overlooking how fees affect net results.
Let’s consider a simple example.
If a CD offers a guaranteed 5% yield and your managed stock portfolio charges a 1% advisory fee, the stock portfolio must earn at least 6% just to match the CD’s net result.
Only after surpassing that hurdle does the stock portfolio begin generating additional value.
When risk premiums are wide, that hurdle may be easy to justify.
When risk premiums narrow, investors should carefully evaluate whether the additional volatility is worth the potential reward.
Does This Mean Investors Should Sell All Their Stocks?
No.
It’s important not to confuse a shrinking risk premium with a recommendation to abandon stocks entirely.
Stocks remain one of the best long-term tools for:
- Combating inflation
- Growing purchasing power
- Supporting long retirement horizons
- Leaving a legacy for heirs
The key takeaway is not that stocks are bad.
The takeaway is that investors should be more intentional about how much stock market exposure they maintain relative to their income needs and risk tolerance.
Retirement planning isn’t about maximizing returns at all costs. It’s about generating sustainable income while managing risk appropriately.
A Question Every Retiree Should Ask
One of the most valuable questions investors can ask themselves today is:
“If I had this money in cash today, would I invest it in stocks at current valuations?”
This thought exercise helps remove emotional attachment from existing investments.
Rather than focusing on what you’ve owned historically, it forces you to evaluate whether your current allocation still makes sense based on today’s market environment.
For many retirees, the answer may be that maintaining some stock exposure remains appropriate.
For others, shifting a portion of assets toward fixed-income investments may provide greater confidence and stability.
Questions to Ask Your Financial Advisor
If you work with a financial professional, now may be a good time to schedule a portfolio review.
Consider asking:
- Has my portfolio drifted from its original allocation?
- Am I taking more risk today than I intended?
- How much income can my fixed-income investments currently generate?
- How does my portfolio perform during a market downturn?
- Are my stock positions still providing enough expected return to justify the risk?
- What role should bonds, CDs, or fixed annuities play in my retirement plan?
The answers may help clarify whether adjustments are needed.
Final Thoughts
The relationship between stocks and fixed-income investments constantly evolves. Today’s environment is unique because attractive fixed-income yields are competing directly with future stock market expectations.
That doesn’t eliminate the need for growth investments, but it does make portfolio construction more important than ever.
For retirees and those nearing retirement, now is an excellent time to review allocations, evaluate income needs, and ensure your portfolio reflects both current market conditions and your long-term goals.
Rather than chasing returns, focus on building a balanced strategy that provides confidence, flexibility, and sustainable income throughout retirement.
Frequently Asked Questions
What is the stock market risk premium?
The stock market risk premium is the additional return investors expect to earn from stocks compared to safer investments such as Treasury bonds.
Why is the risk premium shrinking?
Higher interest rates and attractive fixed-income yields have narrowed the gap between expected stock returns and bond returns.
Should retirees move all their money into bonds?
No. Most retirees still need some stock exposure to combat inflation and support long-term growth. The appropriate allocation depends on individual goals, risk tolerance, and income needs.
What is portfolio rebalancing?
Rebalancing involves adjusting investments back to a target allocation after market movements cause percentages to drift.
How often should retirees review their allocation?
Most retirees should review their portfolio at least annually and after significant market movements or life changes.
Why are fixed-income investments more attractive today?
Many fixed-income investments currently offer yields between 4% and 6%, providing meaningful income with less volatility than stocks.
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Item #1
00:00:02
Right now, many fixed investments are paying 4% 5% or even higher. And when you compare that to what you’re supposed to get from stocks, which is a premium, a risk premium it’s called, you’re barely getting more of an additional reward on top of that fixed rate that you can get elsewhere. the gap between what stocks are paying and what they’re expected to deliver compared to a safe investment like a fixed income
00:00:45
portfolio, that gap, that difference, that premium has nearly vanished. And once you add fees on top of a managed portfolio, the question becomes, are the ups and downs of the stock market, are they really meaningful enough to make it worth it? Speaking of not being meaningful enough, let me bring in my co-host, Tony. Welcome to the show, Tony. >> Super hurtful. Super hurtful. Dan, >> I’m going to share a little uh my screen today. I’m going to share a little bit of um technical wisdom on the stock
00:01:22
market and how things are measured. But the general question is, is the stock market meaningful enough? Are the returns I should say meaningful enough compared to what you can get from the fixed income arena? >> I wonder I wonder that myself sometimes. I mean you see the charts of the last hundred years and oh stocks have ticked up but then you see years like 2022 where it’s way down and if you’re in retirement uh that’s tough. So um fixed indexed products and fixed
00:01:58
uh interest rates on certain uh strategies are appealing that’s for sure >> to somebody who’s risk averse like myself >> and but this is the no this is something that not a lot of people know is stocks are risky bonds are supposed to be safe and one of the common ways that analysts measure This scenario is comparing the S&P’s earnings yield uh technical terms earnings yield. Basically, how much profit an a company has is generating relative to their stock prices. That’s
00:02:37
an earnings yield. You’ve heard terms like PE ratio, price to earnings ratio, so forth. Basically, in a nutshell, you say if that stock company, if I own that company X, because that’s what you do when you buy a stock, you own a company. If company X is making $10 and there’s 10 shares outstanding, that’s a dollar a share. You can kind of get a feel for how much this earnings ratio is, how much they’re earning relative to how much it’s costing me. So, this measure of what the
00:03:08
S&P is providing as an earning yield, and you compare that to the 10-year Treasury note, which many consider risk-free, you get this difference, right? And generally speaking, the stocks are supposed to earn and yield a whole lot more than the treasuries. That’s just the way it works. But when you subtract what the stocks are yielding versus what the treasury yields is yielding, you get a rough estimate that difference of whether or not stocks are worth it. And what’s happened in recent months and
00:03:44
year, in the past year, is the gap has narrowed dramatically. And I want to show you this because it’s starting to question whether it even makes sense to own stocks. >> Well, >> that’s what this I made. >> Well, it’s an age-old question. Why am I on this roller coaster? Right. Why should I take it? We’ve done shows on fixed rates before. We’ve CDs, fixed annuities, treasuries, Ibonds, and a lot of these are paying over 5%. So, is it worth it to jump into stocks?
00:04:26
And what’s happening is well, I want to show you a chart and you can go and look at this uh yourselves. So, this is the earnings yield gap current market valuation.com. You can go and look at this model. I’m going to scroll down, Tony, to some charts because I know you don’t like reading. We’ll look at charts. >> Can you see this chart, Tony? >> Yes. And I do love reading though, Dan. >> Oh, so the orange line is the S&P 500 and the gray line is the Treasury
00:05:03
10-year Treasury rate. So, you can see the orange line is higher here, but all of a sudden they’re pretty close to each other. I want to look at it in another way. This chart’s pretty cool. It’s kind of backwards. So, if you look, and I’m sorry to the to the listeners on Spotify, but you can go to YouTube and watch this video and you’ll see this chart. And you can go to currentmarket valvaluation.com and see this yourself. It’s showing historical since 1960 all the way to today. This chart shows a
00:05:33
line in the middle which is zero, meaning stocks and bonds are equaling in yield. the treasury yield and the stock S&P 500 equal the par. So you’re not doesn’t make difference if you’re investing in stocks or bonds in this scenario you’re getting about the same historically. Let’s go to recent history. You could see when bonds which is when it’s high here this chart is high. Bonds are a better value than stocks. Stocks are overvalued compared to buying a bond. Look, in 2009, Tony, you would
00:06:10
have been better off in bonds. Does that make sense? What was happening around that time with stocks 2008 2009? >> Sure. This the huge the great recession they called it. Stocks tanked like 40 50% in 2008. The housing bubble crashed and uh burst and so bonds went way up. But look at the next 10 years. Ouch. Right? So bond yields were 3% roughly earning more than the stock yields at that time. And then when the stock market crashed, all of a sudden the perceived value, meaning, hey, I can
00:06:51
buy this stock cheap. It’s still going to have earnings. Apple’s still going to sell those iPhones. Yet I’m buying the stock so much cheaper. I’m getting more value for my dollar. And if you look here in 2011 2012, the yield was 6% in favor of stocks versus bonds. Meaning you’re getting an additional 6% by buying stocks in general. Now, this is the S&P 500. So, you know, it’s 500 stocks. It’s not picking exact winners and losers. It’s picking a general assumption, which
00:07:25
represents about 75% of the market in general. >> Yeah. So 2011, yeah, hey, it makes sense to buy stocks. And that’s been the case. There’s been a positive correlation to buying stocks versus bonds since 2010, 11, 12, 20, 22, 24, 25. Then look at the chart, Tony, here. the difference. Now all of a sudden it actually shows that bonds are yielding a higher return than stocks in general as of now. And the last time we were at this point was 2004 2003. >> Yeah. >> Besides that dip in the great
00:08:15
recession. >> Sure. So yeah, what you’re looking at here’s another chart, another way to look at it. This zero line, >> this is as of the end of March, right? >> March 2026. >> So that line of par kind of crossed here earlier in the year at the end of 2025. So you know, sometime in 2025, it’s not dramatically like, oh my gosh, get out of stocks. bonds are better, but it’s no longer, hey, do I buy stocks? >> Of course, no. That’s not the answer. Not necessarily. And that kind of makes
00:08:55
sense if you think about Tony, the conversations we’ve had and especially for someone like yourself who’s risk averse. You’re starting to say, “Is buying stocks right now worth it when I can lock in a high yield of 4% on the treasury or 5 a half, 6% on a fixed rate CD annuity?” Really interesting dilemma we’re facing. And this current market valuation, earnings yield gap, as we call it, is kind of flipping the narrative lately. And I think you’re going to see a lot of
00:09:28
that discussion starting to happen again. Uh what was the term Allen Greenspan used years ago? The stock market’s getting frothy. >> Greenspan was great. Do we do you miss Allan Greenspan as much as I do? Am I dating myself? But I loved Alan Greenspan. Don’t make me bring Ronald Reagan in for a third show in a row. I’m not going to do it. If we’re going to go back, we’re going back further. Um, sure. >> So, but let’s be real, Tony. The stock market over the past five years, I don’t
00:10:02
even know how you would describe it. Unreal. I mean, it’s performed tremendously well. Much better than fixed income. much better than bonds and CDs and annuities and bond ladder >> record highs year after year for the last three years 2026 we’re still going up. So Dan, what are you trying to tell me? We’re going to collapse. See this signal that we’re looking at in this that I showed in this chart that’s forward looking. It suggests going forward that the extra
00:10:40
return for owning stocks going forward may be thinner than what we’re used to. So what does that mean for someone’s retirement plan? You ask. >> Well, you didn’t, but I’m asking. >> Yeah. >> Um, you need to start looking at the growth mix. You got to look at stability versus growth. And when the extra return for owning a stock gets smaller and protecting the principal and having reliable income, fixed income becomes even more important. And you might say, well, in the long
00:11:18
run, right, everyone always says in the long run, stocks way outperform, and I agree with that. And we’ve done shows on rising glide paths. done shows on how stocks are the way to combat inflation. But for a retiree looking at the going forward saying why am they need to start asking why am I in the market they need to look at their buckets again remember we’ve done shows on the buckets how much do you have in that fixed income bucket cash short term bonds CDs fixed annuities you need to look at how much you have in
00:11:52
there because if we do have a drop which the stock market does where you going to go for that money you need to go where the stock market drop isn’t going to hurt you. And that’s the fixed income side. Your longer term bucket, yeah, I’m not trying to pick a top here. I’m not trying to pick a bottom, but you stuff you don’t need to depend on every day. It it can stay in the market, but stuff that you’re going to be using in the near term, like it getting it’s getting
00:12:23
harder and harder to justify having stocks for that purpose. It really is. >> Yeah. because it depends on when you need it. I mean, if you need to take a significant amount out yearly and it’s in the stock market, that’s pretty rough. You have to be well diversified and not just within your stock portfolios, but outside of stocks. Bonds used to be the safe bet and then, you know, they have 10-year periods where they’re way down like we experienced. So, now people are wary of
00:12:53
bonds, but it does pay to be diversified, right? you know, just as of March, as of the last uh check uh from that chart, you can see bonds outperform stocks. So, uh it happens, but there are other fixed uh opportunities outside of stocks and bonds where you can get principal protection, but then you’re giving up some of the growth. So, it’s hard for people. I know >> it is hard. I want to bring up another aspect of this that is often not discussed, especially when you’re talking with advisors, is the fees
00:13:28
associated with it. Like if you buy a CD at a bank or you buy a treasury or you buy a fixed annuity, there’s no fee on those. So, not only are you getting that fixed rate that you know, you’re also not paying a management fee to your advisor to pay to control that because, well, you shouldn’t be anyway. If I’m managing someone’s account and I throw the money in a CD for three years or two years or whatever, I’m not charging a fee on that and I shouldn’t be. So, but think about
00:14:00
that now. Not only are the stocks have to overcome the fixed rate, so let’s say it’s 5%. Not only does the stock portfolio that I’m managing have to overcome that 5%. It’s got to overcome the blanket fee on top, which is usually about 1%. So now I have to get 6% just to break even with the CD. And what’s the average return in the market? Eight. So is it worth going for eight when I can lose eight? You can lose 20. I don’t know, Tony. I’m not It’s I’m I know it sounds like I’m
00:14:33
talking at both sides of my mouth here. I’m not telling people to abandon stocks. They’ve historically been the way to go. And over a long time, yes. But the question becomes, how much do I actually need right now? how much steady income do I need and how much of should I be allocating toward the fixed side now because this risk premium has shrunk to almost zero and it’s like well now balancing is even more important and looking at what you’re going to need is really more important so that’s the
00:15:04
message Tony the message is you know review your allocation and make sure that you’re not because if you Think about what’s happened in the last 5 years. The stock market’s gone up. Your portfolio has probably gone up. So in a percentage- wise, you probably have more in the stock market than you did 5 years ago relative to your fixed income bucket, >> especially if you’re spending that. So it may be time for a rebalance right now. And the best time to rebalance and when was when there’s par between the
00:15:36
stocks and the bonds in terms of yield. >> Interesting. It means what all this means is you have to have a strategy and you can’t put all your eggs in one basket. Not to oversimplify, >> but it is good to take a fresh look at bonds because I think looking forward uh you’re right, you can see some trends and you can see where hey bonds can outperform stocks and make sure that you have alternatives to just high-risk stocks, right? >> Yes. And always again rebalance. Look at
00:16:11
what’s happened historically the past 5 years may have put you out of whack through no fault of your own. Just growth, tremendous growth. You know, you have a 20% return year-over-year. It’s going to throw your portfolio out of balance if you’re and this is why you should be rebalancing. Now, here’s one last question I would also strongly recommend that people ask themselves or more importantly if they have an adviser, ask their adviser. And that’s this Tony. Are my stock positions
00:16:42
worth the risk anymore? And hear what they have to say. And if you’re making your own decision, reflect on that. Is it worth it? Is it worth it? If I wasn’t in the stock market right now, if I just inherited $100,000, I won the lotto, whatever it is, and I have it. Would I put it in the market right now or would I put it in bonds right now? approach it that way and ask your advisor, okay adviser, I have this much in the market, is it worth it anymore? Because the dynamics have changed. The
00:17:16
future expected returns relative to the returns of fixed income has changed. They’re much more closer to par than they’ve been in the past, past 10 years. So the question becomes, is my stock portfolio worth it anymore? And listen to what your adviser says. And if you’re not getting an answer, if it’s like, “Oh, yeah, stocks are always good. Well, we’re fine.” No, the rules have changed a little bit. It’s time to really have a serious discussion about it. That’s what
00:17:44
I’m recommending people do. Have a discussion. >> Yeah. Rebalance. You have to rebalance once in a while. You have to look at it once in a while. It’s not just set it and forget it. Um, a lot of times, yes, you know, stock market over time performs, but you have to look at your situation. things change, right? >> Yeah. And I’m not trying to time the market. Please don’t get me wrong. We’re not a market timing company. We’re balance. We’re allocation. We’re being
00:18:13
smart. We’re focused on income. And retirees in particular really need to focus on income. >> The rest they can invest. But when times like this when we have such a change, rapid change between what stocks are offering relative to bonds, now it’s time to relook, time to rethink. That’s all I’m saying. So Tony, what are you going to do? You’re going to go ask your advisor, is my stock position worth it? See what they say. And I’m offering that same guidance to you, listener. Talk to
00:18:43
someone. Ask it. You might be surprised at what you hear. Thanks for another good show, Tony. We’ll catch everyone next week.
00:00:02
Right now many investments fixed investment. All right, let me start over. Right now, many fixed investments are paying 4% 5% or even higher. And when you compare that to what you’re supposed to get from stocks, which is a premium, a risk premium it’s called, you’re barely getting more of an additional reward on top of that fixed rate that you can get elsewhere. the gap between what stocks are paying and what they’re expected to deliver compared to a safe investment like a fixed income
00:00:45
portfolio, that gap, that difference, that premium has nearly vanished. And once you add fees on top of a managed portfolio, the question becomes, are the ups and downs of the stock market, are they really meaningful enough to make it worth it? Speaking of not being meaningful enough, let me bring in my co-host, Tony. Welcome to the show, Tony. >> Super hurtful. Super hurtful. Dan, >> I’m going to share a little uh my screen today. I’m going to share a little bit of um technical wisdom on the stock
00:01:22
market and how things are measured. But the general question is, is the stock market meaningful enough? Are the returns I should say meaningful enough compared to what you can get from the fixed income arena? >> I wonder I wonder that myself sometimes. I mean you see the charts of the last hundred years and oh stocks have ticked up but then you see years like 2022 where it’s way down and if you’re in retirement uh that’s tough. So um fixed indexed products and fixed
00:01:58
uh interest rates on certain uh strategies are appealing that’s for sure >> to somebody who’s risk averse like myself >> and but this is the no this is something that not a lot of people know is stocks are risky bonds are supposed to be safe and one of the common ways that analysts measure This scenario is comparing the S&P’s earnings yield uh technical terms earnings yield. Basically, how much profit an a company has is generating relative to their stock prices. That’s
00:02:37
an earnings yield. You’ve heard terms like PE ratio, price to earnings ratio, so forth. Basically, in a nutshell, you say if that stock company, if I own that company X, because that’s what you do when you buy a stock, you own a company. If company X is making $10 and there’s 10 shares outstanding, that’s a dollar a share. You can kind of get a feel for how much this earnings ratio is, how much they’re earning relative to how much it’s costing me. So, this measure of what the
00:03:08
S&P is providing as an earning yield, and you compare that to the 10-year Treasury note, which many consider risk-free, you get this difference, right? And generally speaking, the stocks are supposed to earn and yield a whole lot more than the treasuries. That’s just the way it works. But when you subtract what the stocks are yielding versus what the treasury yields is yielding, you get a rough estimate that difference of whether or not stocks are worth it. And what’s happened in recent months and
00:03:44
year, in the past year, is the gap has narrowed dramatically. And I want to show you this because it’s starting to question whether it even makes sense to own stocks. >> Well, >> that’s what this I made. >> Well, it’s an age-old question. Why am I on this roller coaster? Right. Why should I take it? We’ve done shows on fixed rates before. We’ve CDs, fixed annuities, treasuries, Ibonds, and a lot of these are paying over 5%. So, is it worth it to jump into stocks?
00:04:26
And what’s happening is well, I want to show you a chart and you can go and look at this uh yourselves. So, this is the earnings yield gap current market valuation.com. You can go and look at this model. I’m going to scroll down, Tony, to some charts because I know you don’t like reading. We’ll look at charts. >> Can you see this chart, Tony? >> Yes. And I do love reading though, Dan. >> Oh, so the orange line is the S&P 500 and the gray line is the Treasury
00:05:03
10-year Treasury rate. So, you can see the orange line is higher here, but all of a sudden they’re pretty close to each other. I want to look at it in another way. This chart’s pretty cool. It’s kind of backwards. So, if you look, and I’m sorry to the to the listeners on Spotify, but you can go to YouTube and watch this video and you’ll see this chart. And you can go to currentmarket valvaluation.com and see this yourself. It’s showing historical since 1960 all the way to today. This chart shows a
00:05:33
line in the middle which is zero, meaning stocks and bonds are equaling in yield. the treasury yield and the stock S&P 500 equal the par. So you’re not doesn’t make difference if you’re investing in stocks or bonds in this scenario you’re getting about the same historically. Let’s go to recent history. You could see when bonds which is when it’s high here this chart is high. Bonds are a better value than stocks. Stocks are overvalued compared to buying a bond. Look, in 2009, Tony, you would
00:06:10
have been better off in bonds. Does that make sense? What was happening around that time with stocks 2008 2009? >> Sure. This the huge the great recession they called it. Stocks tanked like 40 50% in 2008. The housing bubble crashed and uh burst and so bonds went way up. But look at the next 10 years. Ouch. Right? So bond yields were 3% roughly earning more than the stock yields at that time. And then when the stock market crashed, all of a sudden the perceived value, meaning, hey, I can
00:06:51
buy this stock cheap. It’s still going to have earnings. Apple’s still going to sell those iPhones. Yet I’m buying the stock so much cheaper. I’m getting more value for my dollar. And if you look here in 2011 2012, the yield was 6% in favor of stocks versus bonds. Meaning you’re getting an additional 6% by buying stocks in general. Now, this is the S&P 500. So, you know, it’s 500 stocks. It’s not picking exact winners and losers. It’s picking a general assumption, which
00:07:25
represents about 75% of the market in general. >> Yeah. So 2011, yeah, hey, it makes sense to buy stocks. And that’s been the case. There’s been a positive correlation to buying stocks versus bonds since 2010, 11, 12, 20, 22, 24, 25. Then look at the chart, Tony, here. the difference. Now all of a sudden it actually shows that bonds are yielding a higher return than stocks in general as of now. And the last time we were at this point was 2004 2003. >> Yeah. >> Besides that dip in the great
00:08:15
recession. >> Sure. So yeah, what you’re looking at here’s another chart, another way to look at it. This zero line, >> this is as of the end of March, right? >> March 2026. >> So that line of par kind of crossed here earlier in the year at the end of 2025. So you know, sometime in 2025, it’s not dramatically like, oh my gosh, get out of stocks. bonds are better, but it’s no longer, hey, do I buy stocks? >> Of course, no. That’s not the answer. Not necessarily. And that kind of makes
00:08:55
sense if you think about Tony, the conversations we’ve had and especially for someone like yourself who’s risk averse. You’re starting to say, “Is buying stocks right now worth it when I can lock in a high yield of 4% on the treasury or 5 a half, 6% on a fixed rate CD annuity?” Really interesting dilemma we’re facing. And this current market valuation, earnings yield gap, as we call it, is kind of flipping the narrative lately. And I think you’re going to see a lot of
00:09:28
that discussion starting to happen again. Uh what was the term Allen Greenspan used years ago? The stock market’s getting frothy. >> Greenspan was great. Do we do you miss Allan Greenspan as much as I do? Am I dating myself? But I loved Alan Greenspan. Don’t make me bring Ronald Reagan in for a third show in a row. I’m not going to do it. If we’re going to go back, we’re going back further. Um, sure. >> So, but let’s be real, Tony. The stock market over the past five years, I don’t
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even know how you would describe it. Unreal. I mean, it’s performed tremendously well. Much better than fixed income. much better than bonds and CDs and annuities and bond ladder >> record highs year after year for the last three years 2026 we’re still going up. So Dan, what are you trying to tell me? We’re going to collapse. See this signal that we’re looking at in this that I showed in this chart that’s forward looking. It suggests going forward that the extra
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return for owning stocks going forward may be thinner than what we’re used to. So what does that mean for someone’s retirement plan? You ask. >> Well, you didn’t, but I’m asking. >> Yeah. >> Um, you need to start looking at the growth mix. You got to look at stability versus growth. And when the extra return for owning a stock gets smaller and protecting the principal and having reliable income, fixed income becomes even more important. And you might say, well, in the long
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run, right, everyone always says in the long run, stocks way outperform, and I agree with that. And we’ve done shows on rising glide paths. done shows on how stocks are the way to combat inflation. But for a retiree looking at the going forward saying why am they need to start asking why am I in the market they need to look at their buckets again remember we’ve done shows on the buckets how much do you have in that fixed income bucket cash short term bonds CDs fixed annuities you need to look at how much you have in
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there because if we do have a drop which the stock market does where you going to go for that money you need to go where the stock market drop isn’t going to hurt you. And that’s the fixed income side. Your longer term bucket, yeah, I’m not trying to pick a top here. I’m not trying to pick a bottom, but you stuff you don’t need to depend on every day. It it can stay in the market, but stuff that you’re going to be using in the near term, like it getting it’s getting
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harder and harder to justify having stocks for that purpose. It really is. >> Yeah. because it depends on when you need it. I mean, if you need to take a significant amount out yearly and it’s in the stock market, that’s pretty rough. You have to be well diversified and not just within your stock portfolios, but outside of stocks. Bonds used to be the safe bet and then, you know, they have 10-year periods where they’re way down like we experienced. So, now people are wary of
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bonds, but it does pay to be diversified, right? you know, just as of March, as of the last uh check uh from that chart, you can see bonds outperform stocks. So, uh it happens, but there are other fixed uh opportunities outside of stocks and bonds where you can get principal protection, but then you’re giving up some of the growth. So, it’s hard for people. I know >> it is hard. I want to bring up another aspect of this that is often not discussed, especially when you’re talking with advisors, is the fees
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associated with it. Like if you buy a CD at a bank or you buy a treasury or you buy a fixed annuity, there’s no fee on those. So, not only are you getting that fixed rate that you know, you’re also not paying a management fee to your advisor to pay to control that because, well, you shouldn’t be anyway. If I’m managing someone’s account and I throw the money in a CD for three years or two years or whatever, I’m not charging a fee on that and I shouldn’t be. So, but think about
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that now. Not only are the stocks have to overcome the fixed rate, so let’s say it’s 5%. Not only does the stock portfolio that I’m managing have to overcome that 5%. It’s got to overcome the blanket fee on top, which is usually about 1%. So now I have to get 6% just to break even with the CD. And what’s the average return in the market? Eight. So is it worth going for eight when I can lose eight? You can lose 20. I don’t know, Tony. I’m not It’s I’m I know it sounds like I’m
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talking at both sides of my mouth here. I’m not telling people to abandon stocks. They’ve historically been the way to go. And over a long time, yes. But the question becomes, how much do I actually need right now? how much steady income do I need and how much of should I be allocating toward the fixed side now because this risk premium has shrunk to almost zero and it’s like well now balancing is even more important and looking at what you’re going to need is really more important so that’s the
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message Tony the message is you know review your allocation and make sure that you’re not because if you Think about what’s happened in the last 5 years. The stock market’s gone up. Your portfolio has probably gone up. So in a percentage- wise, you probably have more in the stock market than you did 5 years ago relative to your fixed income bucket, >> especially if you’re spending that. So it may be time for a rebalance right now. And the best time to rebalance and when was when there’s par between the
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stocks and the bonds in terms of yield. >> Interesting. It means what all this means is you have to have a strategy and you can’t put all your eggs in one basket. Not to oversimplify, >> but it is good to take a fresh look at bonds because I think looking forward uh you’re right, you can see some trends and you can see where hey bonds can outperform stocks and make sure that you have alternatives to just high-risk stocks, right? >> Yes. And always again rebalance. Look at
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what’s happened historically the past 5 years may have put you out of whack through no fault of your own. Just growth, tremendous growth. You know, you have a 20% return year-over-year. It’s going to throw your portfolio out of balance if you’re and this is why you should be rebalancing. Now, here’s one last question I would also strongly recommend that people ask themselves or more importantly if they have an adviser, ask their adviser. And that’s this Tony. Are my stock positions
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worth the risk anymore? And hear what they have to say. And if you’re making your own decision, reflect on that. Is it worth it? Is it worth it? If I wasn’t in the stock market right now, if I just inherited $100,000, I won the lotto, whatever it is, and I have it. Would I put it in the market right now or would I put it in bonds right now? approach it that way and ask your advisor, okay adviser, I have this much in the market, is it worth it anymore? Because the dynamics have changed. The
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future expected returns relative to the returns of fixed income has changed. They’re much more closer to par than they’ve been in the past, past 10 years. So the question becomes, is my stock portfolio worth it anymore? And listen to what your adviser says. And if you’re not getting an answer, if it’s like, “Oh, yeah, stocks are always good. Well, we’re fine.” No, the rules have changed a little bit. It’s time to really have a serious discussion about it. That’s what
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I’m recommending people do. Have a discussion. >> Yeah. Rebalance. You have to rebalance once in a while. You have to look at it once in a while. It’s not just set it and forget it. Um, a lot of times, yes, you know, stock market over time performs, but you have to look at your situation. things change, right? >> Yeah. And I’m not trying to time the market. Please don’t get me wrong. We’re not a market timing company. We’re balance. We’re allocation. We’re being
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smart. We’re focused on income. And retirees in particular really need to focus on income. >> The rest they can invest. But when times like this when we have such a change, rapid change between what stocks are offering relative to bonds, now it’s time to relook, time to rethink. That’s all I’m saying. So Tony, what are you going to do? You’re going to go ask your advisor, is my stock position worth it? See what they say. And I’m offering that same guidance to you, listener. Talk to
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someone. Ask it. You might be surprised at what you hear. Thanks for another good show, Tony. We’ll catch everyone next week.