Chart of the day: Dow Jones vs. Treasuries

Knowing when to invest is just as important as investing at all. When one analyzes the returns in the market over longer periods (5+ years), it becomes obvious that certain periods of investing are much less lucrative than others. We are living in one of those times.

Since the late 1990s, in the wake of the Asian Crisis and the Russian government bond default, stock market returns have been poor. Despite a bubble just after the market recovered from the Russian crisis and years of gains after 2003, returns in the market hardly beat cash. We are obviously in a bear market for stocks.

To measure this, I looked back 10 years to May 1998 and compared the returns on the best performing U.S. stock market index, the Dow Jones Industrial Average (DJIA) to the returns on the ‘risk-free’ asset, 1-year treasury bonds. Treasury bonds have generally been considered substitutes for cash. So, how do they compare?

The DJIA wins by a whisker: 40.5% return over 10 years versus 39.4% for treasurys. With the huge risk differential between the two assets, it makes you wonder why one would buy and hold in this market.