While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals...

While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals with a long-term investment horizon may still choose to invest in bonds. Is this rational behavior? Why or why not?

Expert Solution

This is a rational behavior depending upon the risk-taking ability of the investor.

If the investor is risk-averse, he will still prefer to invest in bonds since he gives more weight to the security that he gets rather than the profits/returns that he achieves. The investor prefers the investment to be secure and risk-free rather than high-profit making. Thus such an investor will prefer bonds in the long run as there is the least risk of default on getting interest as well as principal recovery of the investment.

jeff jeffy answered 2 years ago

While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals...

While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals with a long-term investment horizon may still choose to invest in bonds. Is this rational behavior? Why or why not? Give real world example

While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals...

While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals with a long-term investment horizon may still choose to invest in bonds. Is this rational behavior? Why or why not?

Discuss why the stocks of small firms might outperform large firms over long periods of time?...

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Over long periods, stock investments have tended to substantially outperform bond investments. However, it is not...

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Explain within the context of historical returns in the U.S. financial markets: Short-term stocks outperform long-term...

Explain within the context of historical returns in the U.S. financial markets: Short-term stocks outperform long-term bonds.

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While the evidence suggests that over long periods of time that stocks will outperform bonds, individuals...

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