A New Year Perspective on Stocks and Bonds: What Long-Term Market History Shows About Owning, Lending, Risk, and Return

I recall sitting across from a business owner who was frustrated with the cost of borrowing. The bank wanted covenants. The interest rate felt high. The paperwork was burdensome. And then he said something that stuck with me: “I save money by being the lender.”

My follow-up question was not about interest or markets, but about ownership. If the bank offered to own part of his company instead of lending the money, would that feel like a better deal? He didn’t hesitate. “Absolutely not.”

That reaction is worth reconsidering, because it reflects the same trade-off investors face when choosing between stocks and bonds. At its core, the decision is the choice of owning versus lending, and what history has shown about this choice over extended periods of time.

A lender receives a contractual promise: interest and principal.

The outcome is defined, limited, and typically steady. An owner receives whatever remains after costs, wages, taxes, and debt are paid. Ownership is uncertain and often uncomfortable, but it participates directly in growth. Over long stretches of market returns, that distinction has mattered a great deal.

Long-term data from neutral academic sources such as NYU Stern’s annual market return summaries consistently show that stocks—representing ownership in productive businesses—have delivered much higher long-run returns than bonds, which represent lending. The difference is not trivial, and it has persisted across inflationary periods, recessions, wars, and technological change. Ownership has been rewarded because it absorbs uncertainty and is the beneficiary of productive assets.

That idea is not new. In Stocks for the Long Run, Wharton finance professor Jeremy Siegel examines more than two centuries of U.S. market history to reach conclusions about real returns for asset classes (the returns after inflation) and reaches a similar conclusion. If your goal is an income you don’t outlive, with funds left over as a legacy to people and services you love, stocks are not part of the answer, they are an essential answer.

On the topic of inflation, Siegel reminds us that fixed payments are made in nominal dollars ─ how many dollars you receive, not what those dollars could buy. For long-term investors, that distinction is critical. Inflation does not show up

as a line item, but it quietly erodes purchasing power over time, particularly for assets with fixed cash payments. Most pensions and annuities carry this risk, while Social Security ─ the best inflation protected asset you have ─ does not.

None of this suggests that bonds lack value. Bonds exist for a reason, and they do important work in portfolios. The better question may be what job are bonds being asked to do? For many investors, bonds are intended to provide liquidity, income, emergency funding, and volatility control for all these needs. Those are legitimate objectives—but they are not exclusive to bonds. Cash reserves, short-term instruments, insurance contracts, diversified income strategies, and certain real assets can also serve these roles, sometimes more precisely depending on timing and circumstance.

Viewed this way, stocks and bonds are not competitors so much as collaborators with different responsibilities. Stocks have historically been the primary driver of long-term growth. Bonds have often played a supporting role—helping investors stay disciplined, meet obligations, provide income, and endure periods of uncertainty without abandoning ownership altogether.

History does not promise future results, but it does offer perspective and validate the value of a time-based financial plan.