Are Stocks Riskier than Bonds? Not If You Assess Risk Like Warren Buffett

Abstract

Academics, practitioners, and investors essentially agree that in the short term stocks are riskier than bonds. Which of these two assets is riskier in the long term, however, is controversial. This short article explores this issue by assessing long-term risk as suggested by Warren Buffett; that is, with the probability of losing purchasing power. If risk is viewed this way, a comprehensive dataset spanning over 19 countries and 110 years clearly suggests that in the long term stocks are less risky than bonds.

Keywords: Long-term risk, short-term risk, shortfall risk, Buffett

JEL Classification: G11