do stocks or bonds have higher returns

Do Stocks or Bonds Have Higher Returns?

This article answers the common question "do stocks or bonds have higher returns" by comparing definitions, historical evidence, why equities typically outpace fixed income over long horizons, when bonds can outperform, how returns are measured, and what investors should consider when choosing an allocation. Read on to get clear, data‑based context and practical guidance you can use when planning goals, income needs, or retirement saving.

Overview — short answer

Historically, across long horizons, stocks have produced higher average nominal and real returns than bonds. However, stocks come with greater year‑to‑year volatility, deeper multi‑year drawdowns, and sequence‑of‑returns risk. Bonds have lower average returns but provide income, lower volatility, and powerful diversification benefits in many scenarios. Whether "do stocks or bonds have higher returns" for any investor depends on the bond type, time horizon, interest‑rate regime, and valuation levels.

Sources for these conclusions include long‑run datasets from Aswath Damodaran (NYU), the AAII long‑run studies, Investopedia, and research summaries from market firms such as Morgan Stanley and Bankrate.

Definitions and basic mechanics

What are stocks?

Stocks (equities) represent ownership stakes in corporations. As owners, equity investors claim residual cash flows after creditors are paid. Stocks generate returns from two main sources:

• Capital gains (changes in the share price).
• Dividends (periodic cash payouts), which can be reinvested to compound returns.

Equity returns reflect corporate earnings, growth expectations, investor risk appetite, and valuations.

What are bonds?

Bonds are debt instruments: an issuer (government, municipality, or corporation) borrows money and promises periodic coupon payments and principal repayment at maturity. Bond returns come from:

• Coupon income (fixed or floating interest payments).
• Price changes (driven by interest rates, credit spreads, and changes in issuer creditworthiness).

Bond types vary widely — short vs long duration, government (Treasuries), investment‑grade corporates, high‑yield (junk) bonds, and municipal bonds with tax characteristics.

Historical evidence

This section summarizes long‑run and recent historical comparisons showing how stocks and bonds have performed.

Long‑run averages (20–150+ year perspectives)

Long‑run datasets consistently show that equities have delivered higher average annual returns than bonds over long horizons. For example, broad U.S. equity indexes have historically averaged nominal returns in the high single digits to low double‑digits over many decades, while high‑quality bonds have averaged materially less.

Key datasets and studies include:

• Aswath Damodaran (NYU) historical returns series (stocks, bonds, bills) covering 1928–2024.
• AAII and earlier academic work (extending comparisons back to the 19th century) demonstrating persistent equity outperformance across very long samples.
• NBER research summarizing average equity premiums over the 20th century.

Exact numerical averages depend on the period and bond proxy. The S&P 500 long‑run nominal average is often cited near ~10% annually for many 20th‑century subperiods (including dividends). Treasury and high‑grade corporate bonds typically average several percentage points lower. These magnitudes can vary: for example, a long‑run equity premium over bills or Treasuries might be in the 3%–6% range historically, depending on measurement choices.

Very long historical studies (1802 onwards)

AAII and academic researchers have extended data back to the early 1800s in some studies. Those very long studies (and related work by Jeremy Siegel and others) find that, across centuries, equities have tended to outperform fixed income. Caveats apply: long historical studies rely on different proxies for early bond markets, suffer survivorship and data‑quality issues, and must be interpreted carefully.

Recent multi‑decade data and observations

More modern datasets (Damodaran/NYU 1928–2024) provide annual returns that researchers and practitioners use to compute rolling averages and volatility. Shorter windows (e.g., 5–10 years) can produce very different conclusions: in some recent periods, bonds briefly outperformed stocks, especially when bond yields were attractive and equity valuations were high.

Sources with consolidated tables and rolling windows include Bankrate, TradeThatSwing (S&P 500 averages), and NBER digests.

Why stocks typically earn higher returns

Equity risk premium — compensation for risk

Economically, the primary reason stocks have historically earned higher returns is the equity risk premium: investors require compensation for taking durable risks. Stocks are residual claims; corporate cash flows are uncertain and can vary widely with economic cycles. That uncertainty — plus the possibility of permanent loss of capital — demands higher expected returns.

This logic underlies modern finance: higher risk -> higher expected return. Empirically, over long horizons, the observed premium compensates equity holders for price volatility, business‑cycle exposure, and lower recovery in worst‑case outcomes.

Growth and reinvestment potential

Companies can grow profits and reinvest earnings to expand future cash flows. That reinvestment potential allows compounding of returns that fixed‑coupon bonds lack. Equity investors capture a share of corporate growth, which drives higher long‑term total returns.

Inflation protection and real growth capture

Over long periods, corporate revenues and earnings can rise with inflation and real economic growth. Stocks therefore offer some protection against inflation (not perfect), while fixed‑coupon bonds can lose purchasing power if coupons and principal are fixed and inflation rises unexpectedly.

Risks, volatility, and short‑term behavior

Higher volatility and deeper drawdowns

Stocks experience larger year‑to‑year swings and more severe multi‑year drawdowns than high‑quality bonds. Large financial crises can erase significant equity market value in short timeframes; bonds historically have had smaller peak‑to‑trough moves and often rally (price increases) during risk‑off episodes.

This higher volatility affects short‑horizon outcomes and sequence‑of‑returns risk for retirees who need withdrawals during downturns.

Statistical uncertainty and measurement issues

Estimating the "true" equity premium is statistically noisy. Wide confidence intervals mean that point estimates can be misleading for short samples. That uncertainty explains some academic debate and motivates prudent portfolio construction rather than relying solely on point estimates.

Situations when bonds outperform stocks

Although stocks have higher long‑term averages, there are many realistic situations when bonds outperform.

High bond yield environments and low equity risk premiums

When bond yields are high (offering attractive current income) and equity valuations are stretched, bonds can deliver higher near‑term returns. Research notes from Morgan Stanley and other market strategists have flagged periods when attractive Treasury or corporate spreads make fixed income a better near‑term bet than equities.

Recessions, deflationary episodes, and flight to safety

During severe risk‑off episodes, high‑quality bonds (Treasuries) often attract safe‑haven flows and can post positive returns even as equities fall. A large, synchronized equity sell‑off can be accompanied by a rally in government bonds, improving fixed income performance relative to stocks.

Short horizons and income needs

For investors with short time horizons or immediate income needs, bonds (especially short‑term, high‑quality instruments) can be superior. Predictable coupon income and lower price volatility reduce the risk of having to sell assets at depressed prices.

Examples from recent market history

• As of January 20, 2026, according to CNN, markets experienced synchronized volatility across equities, bonds, and crypto tied to geopolitical tensions; the bond market’s reaction (Treasury yield moves) was a central indicator of broader market stress. In certain 2025–2026 windows, Treasury yields and attractive coupons led some investors to prefer bonds temporarily. (Reporting date: January 20, 2026.)

Note: short windows can be dominated by macro shocks, and past short‑term bond outperformance does not change long‑term averages.

How returns are compared — methodology and caveats

Total return vs price return

Comparisons must use total return measures that include dividends for stocks and coupons for bonds, assuming reinvestment. Price return comparisons alone understate the income component that materially affects long‑term performance.

Nominal vs real returns (inflation adjustment)

Nominal returns are before inflation. For long‑term wealth planning, real returns (after inflation) matter. Historically, equities have produced positive real returns over long windows, but inflation can materially change the real advantage.

Sample period, survivorship and data biases

Where you start and end your sample matters. Choosing start dates during depressions or peaks can bias the computed premium. Early‑era bond markets used different instruments, and survivorship bias can affect long historical series. Researchers explicitly call out these caveats in AAII and Damodaran notes.

Role of duration, credit quality and bond type

“Bonds” is not a single asset class. Duration (sensitivity to interest rates) and credit risk materially change expected returns and volatility. Long‑duration Treasuries may show higher price volatility than short‑duration corporates in certain rate regimes. High‑yield bonds offer higher yields but also more credit risk, narrowing the historical return gap with equities but increasing default risk.

Investment implications and practical guidance

The following guidance synthesizes evidence without giving personalized investment advice. Match choices to goals, horizon, and risk tolerance.

Asset allocation and time horizon

For long horizons and growth objectives, equity allocations tend to be higher because stocks historically deliver higher expected returns. For shorter horizons or capital preservation needs, higher bond weightings reduce volatility and drawdown risk.

Common rule‑of‑thumb frameworks (age‑based equity shares, glidepaths for retirement) are practical starting points, but individual circumstances (risk tolerance, liabilities, and tax situation) should guide final allocations.

Diversification and rebalancing

Combining stocks and bonds lowers portfolio volatility and can enhance risk‑adjusted returns. Rebalancing enforces disciplined buy‑low/sell‑high, capturing some benefits of mean reversion across asset classes.

Income planning and liability matching

Bonds are useful for matching near‑term liabilities, building predictable retirement income ladders, and funding short‑term cash needs. Liability‑driven investors often use a mix of duration and credit considerations to align cash flows.

Tactical considerations (valuation, yield environment)

Tactical shifts — increasing bond exposure when yields are attractive or increasing equity exposure when valuations are cheap — are common among professional managers. Such moves carry timing risk and require clear rules and discipline.

Types of bonds and how their returns differ

Treasuries vs investment‑grade corporates vs high‑yield

• Treasuries (U.S. government bonds): Lowest credit risk, often viewed as the risk‑free benchmark; lower yields relative to credit alternatives.
• Investment‑grade corporates: Offer spread over Treasuries for credit risk; higher yields but some default/recovery risk.
• High‑yield (junk) bonds: Higher coupon rates and higher default risk; historically generate higher returns than IG bonds but with greater credit volatility.

Different bond types alter the stocks‑vs‑bonds comparison materially.

Bond duration and interest‑rate sensitivity

Duration measures how much bond prices move for a change in yields. Longer duration increases price sensitivity. In rising‑rate environments, long‑duration bonds can suffer substantial price losses; in falling rates, they can outperform equities briefly.

Municipal bonds and tax‑adjusted returns

Municipal bonds often offer tax‑exempt interest for residents of the issuing jurisdiction. After adjusting for taxes, munis can be competitive with taxable bonds for certain investors. Always compare after‑tax yields when evaluating munis vs taxable fixed income.

Academic debates and puzzles

The equity premium puzzle

Academics have long debated why the observed equity premium is larger than standard economic models predict. This "equity premium puzzle" suggests that historical data show a larger reward for holding equities than simple risk models can easily explain. Various theoretical and behavioral explanations have been proposed.

Statistical uncertainty and changing regimes

Structural shifts — changing inflation regimes, monetary policy, financial innovation — can alter expected returns. Historical averages are informative but not deterministic forecasts of future relative returns.

Recent trends and 2020s developments

Periods of bond outperformance

In the 2020s there have been episodes when bonds outperformed equities. For example, when bond yields spiked or provided attractive yields compared with equity dividend yields and expected equity returns, some investors rotated into fixed income.

As noted by major market firms in recent notes, a cycle of rising real yields or compressed equity risk premiums can temporarily favor bonds. Conversely, prolonged low yields generally favor equities for long‑term return prospects.

Low yields era and implications

Prolonged low interest rates compress expected future bond returns. When Treasury yields are very low, the long‑term return edge of equities widens, all else equal. Conversely, when yields rise from low levels, bonds regain attractiveness due to higher current income.

Practical data sources and further reading

Below are authoritative datasets and guides readers can consult for their own analysis (source names only; search by name):

• Aswath Damodaran (NYU) — historical returns dataset (stocks, bonds, bills).
• AAII long‑run studies and historical equity vs fixed‑income comparisons.
• Investopedia — primer on why stocks generally outperform bonds.
• Bankrate — aggregated tables comparing asset‑class long‑term returns.
• NBER digests and academic papers on the equity premium.
• Morgan Stanley research notes on tactical fixed‑income vs equity considerations.
• TradeThatSwing and similar resources for S&P 500 long‑term averages.
• NerdWallet and John Hancock investor guides for beginner‑friendly allocation advice.

For timely market context, major news reporting (e.g., CNN coverage of market moves) can show how geopolitical and policy events affect short‑term relationships between stocks and bonds. As of January 20, 2026, reporting highlighted a synchronized sell‑off across stocks and bonds tied to geopolitical tensions; the bond market reaction was a key indicator of stress at that time. (Reported: January 20, 2026.)

Summary — key takeaways

• Historically, stocks have delivered higher long‑term returns than bonds, reflecting an equity risk premium for bearing higher uncertainty and residual claims on corporate income.
• Bonds offer lower average returns but lower volatility, reliable coupon income, and diversification benefits. In certain periods (high yields, risk‑off episodes, or short horizons) bonds can outperform stocks.
• How you answer "do stocks or bonds have higher returns" depends on the measurement window, bond type, and investor objectives. Use total returns (including dividends/coupons), consider inflation‑adjusted returns, and match allocations to your goals and time horizon.

If you want to explore markets, track bond yields, or build a tailored asset allocation, consider tools that let you compare historical total returns and simulate different glidepaths. Bitget provides market tools and the Bitget Wallet for users exploring a range of asset types, including education and portfolio tracking features.

References (selected sources used in this article)

• Investopedia — "Why Stocks Generally Outperform Bonds" (educational primer)
• MD Wealth Management — "This Is Why Stocks Have Higher Returns Than Bonds" (practitioner view)
• John Hancock — "Should I Invest in Stocks or Bonds?" (investor guide)
• Bankrate — "Battle of the assets: Which asset class delivers the best long-term returns?" (aggregated tables)
• AAII — "Equity vs. Fixed-Income: Return Patterns Since 1802" (very long‑run study)
• Aswath Damodaran / NYU dataset — "Historical Returns on Stocks, Bonds and Bills: 1928–2024" (primary dataset)
• TradeThatSwing — S&P 500 long‑term averages and rolling return illustrations
• NBER — digest and papers on equity premium and historical performance
• NerdWallet — "Bonds vs. Stocks: A Beginner's Guide" (practical primer)
• Morgan Stanley — research notes on when bonds may beat stocks (tactical perspective)
• CNN — market coverage and reporting related to January 2026 market moves (reporting date referenced above)

Further reading: consult these sources by name to find the underlying datasets and tables.

Notes and editorial cautions

This article is informational and does not provide personalized investment advice. Past returns do not guarantee future results. Comparative performance between stocks and bonds depends on bond type, duration, credit risk, and the precise sample period used. For decisions tied to retirement, taxes, or major financial goals, consult a qualified financial professional.

Want a concise action checklist or a printable 1–2 page summary tailored to a specific investor profile (e.g., retiree, 30‑year‑old saver, or trustee)? Reply and I will prepare it. Explore Bitget tools to monitor markets and manage portfolios if you wish to track returns across asset classes.