I’m Keith DeGreen and this is your Investors Minute.
The answer, in my opinion, is stocks.
Historically, the 10-year yield on U.S. government bonds equals nominal GDP. Nominal GDP is calculated by adding the rate of economic growth and the rate of inflation. Therefore, the 10-year yield right now should be about 1.8% for inflation plus about 2.2% for growth, or 4%. Instead, the 10-year yield is hovering at about 2%.
As yields increase – and they eventually will – the value of existing bonds, with their lower yields, will decline because they must be sold at a discount to produce a competitive yield. Meanwhile, many stocks pay dividends that yield more than the yield on 10-year bonds — Plus they offer the potential for growth.
I’m Keith DeGreen and this has been your Investors Minute.
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