Stocks and Bonds Are Actually Equally Risky, and Nobody Tells You
Stretch the holding period to 20 years and the volatility of stocks and bonds is nearly identical — bonds are in fact more likely to post a real loss. So what long-term investors should really watch isn't a market benchmark, it's purchasing power.
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The argument · tap a timestamp to hear it
Recency bias has two layers, not just the post-1980 one
Inigo splits the recency bias investors need to strip away into two layers: one is the low inflation, high growth and negative stock-bond correlation since 1980; the other is longer — the US-led rules-based order after World War II. He argues neither regime applies in the same way now, so the question isn't ‘the future is uncertain’ — you could say that in any year — but what's left once you peel away both layers of experience. He names three sources of uncertainty that are genuinely different from the past: AI, climate change and geopolitical change.
— Inigo Fraser-JenkinsDifferent holding periods care about fundamentally different things
Inigo rejects the idea that ‘the long term is just a string of short terms stitched together’. Within a year, technicals, momentum and flows matter most; approaching ten years, valuation and growth rates matter most; beyond that, preserving purchasing power becomes the core. He draws a specific dividing line: an investor with a rolling one-year horizon who wants to hedge inflation should buy assets positively correlated with inflation, such as commodities or TIPS; but a long-term investor shouldn't care about an asset's correlation to inflation, but about whether that asset can still generate a real return under persistently high and volatile inflation — and those aren't necessarily the same assets. Stocks and farmland could both make the cut.
— Inigo Fraser-JenkinsOver a 20-year holding period, stocks and bonds have equal volatility
This is the hardest argument in the piece. Inigo says people are used to reducing risk to one year's return volatility, but stretch the holding period out and the relative volatility of stocks and bonds flips: measured over a 20-year holding period, stocks and bonds are basically equal; put another way, once you go beyond a few business cycles, bonds are more likely than stocks to suffer a real loss. From this he derives the conclusion that governance matters more than allocation — because the definition of risk itself has to be settled by the governance layer before you can even talk about allocation. In the same passage he notes that the success or failure of a cross-asset momentum strategy can be measured over a very short window, whereas a cross-asset value strategy is measured in years.
— Inigo Fraser-JenkinsFix spending first, then decide whether to hold liquidity
Inigo breaks liquidity into two things. The first is hard: any necessary annual spending must sit outside the structure, be fixed in advance, and must not drift upward in good years — changing it should require a formal review. The second is opportunistic: holding liquidity to buy the dip depends on whether you'll actually use it. If you're willing to buy individual assets when prices are badly dislocated, the money is worth it; if you only make decisions at the asset-class level, or you're not sure you'll pull the trigger at all, then that money is an opportunity cost that drags on the portfolio, and you should end up close to fully invested.
— Inigo Fraser-JenkinsTax planning is taking a bigger share of after-tax returns
Inigo offers a portfolio judgment: the coming decades will most likely bring lower returns, while government debt to GDP is at very high levels, so whatever politicians say today, tax rates will rise on some time scale. Stack those two together and it means that for taxable investors, tax planning will take a larger share of after-tax returns than in many past years. He also names inflation as the leading long-term destroyer of wealth, arguing that punitive tax regimes or social unrest, while severe at certain moments, are extremely hard to hedge.
— Inigo Fraser-JenkinsThere are dozens of times more indices than stocks, and that's absurd
Inigo rejects market benchmarks as the organising principle for a long-term portfolio. He gives a concrete comparison: the number of global equity indices is already in the millions, while there are only about 45,000 stocks in the world including small caps — sixty or seventy times more buckets than assets to put in them. He goes further: at the cross-asset level there is no natural default benchmark at all. 60-40 became the default only because it happened to perform well over the past forty or fifty years; there's no theoretical basis for it. His alternative is to treat inflation as an exogenous target line and weight assets in a more risk-based way.
— Inigo Fraser-JenkinsNegative stock-bond correlation is the exception; positive is the norm
Inigo says the negative correlation between stock and bond returns before 2022 has been baked into people's thinking, but it was actually a product of the special period of the past twenty or thirty years. Look back over the preceding 200 years and stock-bond correlation was positive most of the time. He sees a shift to positive correlation as a return to normal, and as more consistent with a world that suffers inflation shocks — shocks that may come from climate, deglobalisation or debt monetisation, none of which are growth-driven. So the cross-asset correlations that have been so friendly to investors in recent years no longer have a reason to exist, and a different approach is required.
— Inigo Fraser-JenkinsBuild a portfolio that survives on multiple paths
Inigo repeatedly stresses that he doesn't want to just say ‘the future is always uncertain’, but to point out that AI, climate, geopolitics and the breakdown of the rules-based order have made the forecast paths for the future extremely divergent, while our ability to model policy and growth under those paths is poor. The response is to build a portfolio that is robust across several different paths — for instance, imagine a combination of temperatures rising more than two degrees, geopolitical change, and AI's effect on employment turning out unexpectedly. The tool he mentions is the total portfolio approach: no longer treating asset class as the primary dimension of risk, but allocating risk according to the more fundamental factors that drive the portfolio — though that requires major governance change, and large institutions can only move slowly and humbly.
— Inigo Fraser-JenkinsIn their own words · checked verbatim
I mean, I certainly take the view that finance and social science in general is not a science. You don't have this access to universal statements. But often people think that we do, and that can be dangerous in times of regime change.
Inigo Fraser-Jenkins9:03
rather than talking about diversification in a sense of trying to find things that have a low correlation amongst themselves, we're talking about diversification across different possible paths of the future.
Inigo Fraser-Jenkins14:11
if you look at the volatility of 20-year holding periods, then essentially the vol of stocks and bonds are equal. Or phrased another way, the probability of a real loss on bonds becomes greater than the probability of a real loss on equities once you extend out beyond a few business cycles.
Inigo Fraser-Jenkins31:46
my view is tax rates are going up, you know, at some horizon. And so the combination of the two views imply that the value to a taxable investor of the tax planning actually becomes a larger share of the take-home returns than they've had for many years.
Inigo Fraser-Jenkins40:06
we showed in a paper a while ago that the number of equity indices in the world was already measured in the millions, whereas there only are about 45,000 stocks all in in the world, including small caps.
Inigo Fraser-Jenkins42:08
there is no such thing as a default natural cross-asset benchmark. I mean, some people would say, oh, well, surely it's 60-40. Well, yes, 60-40 is often the default allocation people use, but it happens to have done well in the last 40 or 50 years. But there's no theoretical basis for it, really.
Inigo Fraser-Jenkins43:11
I would argue that that shift since 22 to the correlation of asset classes being positive is firstly, a return to normality. So if you go back over the 200 years prior to the last 30 years, that correlation was positive most of the time.
Inigo Fraser-Jenkins47:22
Figures
| Total number of stocks worldwide (including small caps) | About 45,000 | 42:08 |
| Number of global equity indices | In the millions | 42:08 |
| Share of global investable assets held in ultra-long-term multi-generational structures | A high single-digit percentage, at most | 23:35 |
| Year the negative stock-bond correlation broke | 2022 | 47:22 |
| Historical window over which positive stock-bond correlation is reviewed | The 200 years before the past 30 years | 47:22 |
| Holding period over which stock and bond volatility are equal | 20 years | 31:46 |
Glossary
- total portfolio approach
- Allocating risk across the whole portfolio by the fundamental factors that drive it, rather than treating asset class as the primary dimension.
- rule against perpetuities
- A common-law principle forcing family wealth back into individuals' hands after roughly 100 years, so it can be taxed.
- recency bias
- Treating recent experience as the norm; Inigo considers it the long-term investor's greatest enemy.
- 60-40
- The default allocation of sixty percent stocks and forty percent bonds, which Inigo argues has no theoretical basis.
How to listen
Heads of multi-generational capital at family offices, endowments or sovereign funds, and asset allocators who want to understand why the definition of long-term risk differs from the short-term one.
The first five minutes or so of show intro and subscription notes, plus the chat about degrees in physics and philosophy of science.