Buying Bonds Could Be the Single Most Important Investing Decision You Make for 10 Years

Buying Bonds Could Be the Single Most Important Investing Decision You Make for 10 Years

Rob Isbitts

Sat, August 15, 2026 at 5:00 PM GMT+3 5 min read

Today's investors seem to want upside, upside, and more upside. I get it.

After a generation of pathetically low interest rates and negligible returns on bonds, who can blame investors for ignoring the asset class that is actually much bigger than the stock market?

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However, I'm increasingly of the opinion that the U.S. Treasury Bond market might be giving away the biggest "free lunch" any of us have seen this century. There's risk to anything and everything in investing. But this might be an opinion we look back on a decade from now and realize "wow, that was a no brainer. It just didn't seem that way at the time, so many people ignored it."

Here's what I'm referring to. This is a chart of the 10-year U.S. Treasury bond. As of this writing, it yields just under 4.7%. But if we look at that chart which covers the past four years of trading, we see it has been in a range from 3.6% to 4.8%. So it is toward the high end of that setup.

I know that does not compare to equity returns of the past 10 years. But here's the thing about past performance: we can't have it! All we can do is look forward.

And when I do that, mindful of market and interest rate history, I like my chances with a big allocation of my portfolio to bonds. A ladder in my specific case, as I've written about here several times. But that's just me. The biggest concept I'm trying to get across is to not ignore the tradeoffs in favor of a 5%-ish return over 10 years' time. Especially with the S&P 500 Index ($SPX) looking so good in the rear-view mirror.

The 10-year bond range is a sharp departure from the post-2008 era of 0%-2% yields. And to me, it dramatically changes the hurdle rate for equity risk. Or equity risk premium, if you will.

When guaranteed government debt yields 5%, taking equity risk requires expecting a clear premium in total return.

What's the S&P 500's 10-Year Return History?

Looking at rolling 10-year annualized nominal returns for the S&P 500 going back to 1928 reveals clear historical frequencies:

The Long-Term Baseline: The average annualized 10-year total return for the S&P 500 historically sits near 10.2%.

Frequency Above 7%: Approximately 75% of all 10-year rolling windows in U.S. history delivered nominal annualized returns exceeding 7%.

The "Lost Decades": In roughly 25% of historical 10-year windows, the S&P 500 failed to generate a 7% annualized return. Periods following extreme valuation peaks, such as the 10-year windows starting in 1929, 1968, and 1999, generated annualized returns below 3% or negative total returns over a full decade.

Why Starting Valuations Matter Here

The decision to choose a guaranteed 5% yield over equity market risk depends heavily on starting equity valuations. Historically, future 10-year stock market returns correlate strongly with starting price-earnings (P/E) ratios and market concentration levels.

When equities enter a decade trading at elevated valuation multiples (such as CAPE P/E ratios above 30x), forward 10-year equity returns historically compress toward the 3% to 6% range. And, when 10-year Treasury yields sit at 5% and stock market earnings yields sit near 4.5% to 5.5%, the extra return demanded for taking equity risk (the equity risk premium) shrinks toward zero.

So, when does it make sense to take that 5% and run and hide? If an investor requires principal protection, income certainty, or operates with a defined investment horizon, securing a 5% yield without equity drawdown risk eliminates stock market volatility.

Now, the bonds will fluctuate in value, sometimes to an extreme. But this is an exercise in owning the bonds outright, as opposed to holding bond ETFs. The former mature on a known date for a known amount of money, based on what you invest and the yield at the time. That is NOT the case with bond ETFs.

In periods where equities deliver a "lost decade" (0% to 4% returns), a 5% fixed-income floor easily outperforms stocks. I've lived through two of them as a professional investor. No one believes it can happen, until it does. And by the time that occurs, the S&P 500 is usually down 40%-50% from its cycle high.

When Reaching for Equities Is Necessary, and When It's Not

Over long time horizons (15 to 30 years), equity compounding at 9% to 10% builds higher purchasing power. Furthermore, equities offer dividend growth that can adjust for inflation over time, whereas fixed-rate bonds return nominal principal without inflation adjustments.

A persistent 4% to 5% long-term bond rate makes fixed income a viable competitor to stocks for the first time in nearly two decades. That's in part because I'm in my 60s. But even for younger investors, when starting stock valuations are elevated, locking in a guaranteed 5% return across a portion of a portfolio removes the necessity of relying entirely on equity markets to meet long-term financial targets. Or to buy that home you hoped to fund with your stock portfolio in a few years.

This is about ALLOCATION to bonds in this form. Everyone is their own investment boss, ultimately. I'm just pointing out here, yet again, with rates seemingly settling into a longer-term range the likes of which we have not seen in about 20 years, that we don't all have to be 100% allocated to stocks.

Rob Isbitts is a semi-retired CIO, former fiduciary investment advisor, and Barchart columnist. Check out his other work at ETFYourself.com (featuring the Fresh Charts weekly trading post), and ROAR.PiTrade.com, helping investors to better-manage their own portfolios.

On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com