Historical data has a lot to say about where you should put your investment capital. For example, when it comes to asset allocation, how you divide up your money may determine you chances of the best return on investment for your portfolio. It’s not just about finding good stocks to buy. It’s also about whether you should be in stocks at all.

Why Stocks are the Best Investments Over Time

The short answer is that you should be in stocks, but only if you have 5-10 years before you need the cash. That is because it is more volatile than say bonds. But they will also give you a better return over time as well.

People who have 90% in stocks and 10% in bonds will fair better over time than those who have 60/40. That’s just historical fact. Although it can’t guarantee future outcomes, it will give you the best chances at a decent return for your retirement fund. Stock investing is risky. Find a professional financial advisor to help you before making any decisions.

If you take any 10 year period in the Dow Jones Industrial Average, you will make money 100% of the time.  If you invest in a broad market index fund for over 20 years, the changes are very high that you will get at least a 10% annualized return during that period.  That is even with the ups and downs of that the stock market naturally experiences during the course of time.

Times When Bonds are a Better Investment

There are at least a couple of situations where investing in bonds makes sense.  The first is if you are mega wealthy.  There are times during the business cycle where if you have a ton of money, there just aren’t enough stocks to buy out there that are good deals.

This probably means that the economy is not doing well and stocks are taking a beating.  Then it might make sense to park your money in bonds.

Another instance where investing in bonds may make sense is if you are close or at retirement age.  If you don’t have 7-10 years to wait for the stock market to run it’s down cycle, you may want to allocate it into bonds.

That is because bonds give fixex income and they are less volatile.  That is why as you get older, the proportion of bonds in your portfolio should rise.

Other Asset Classes

There are other asset classes like derivatives, money market funds and commodities.  Hwoever, generally you will want to stay away from these asset classes.  Derivatives and commodities are very risky, volatile and complex instruments.  And money market funds give way too little return overall if you want to beat the market.