• US stocks delivered exceptional returns in the 2020s, but are now historically expensive, raising concerns of a potential market correction.
• Bonds have underperformed in this decade so far, with 2022 marking the worst annual loss ever and recent years showing inflation-adjusted losses.
• Greed has caused a reversal of US stock dominance as gold and foreign stocks took the lead in 2025
• Fear is also in play as Waren Buffet is increasing cash holdings, while Vanguard advocates a more conservative 40/60 stock/bond allocation, especially for people near retirement.

 We’ve reached a 100-year milestone for our dataset that we began collecting in the 1970s. Hooray!!The following summarizes the century, and then turns attention to the recent past, setting the stage for the future. Understanding the past prepares us for the future and provides perspective on what is happening now. We graphically highlight the past 100 years with the 20 charts that follow.

100 Years of Stocks, Bonds, Bills and Inflation

The following graphs and table provide an overview of the past 100 years. Stocks are represented by the S&P500 and bonds by the Vanguard total bond market ETF (BND). Here are some observations from the table. You should develop observations of your own also.

• The first 50 years (1926-1975) were less “efficient” than the most recent (1976-2025) for stocks, but the reverse is true for bonds. We measure efficiency as the Sharpe Ratio which is the return earned per unit of risk; it’s a return-for-risk measure. Ask yourself why the recent stock market has been more generous, but the bond market has not (I don’t have an answer). Here’s a possible clue: The first 50 years was more volatile for stocks, but less volatile for bonds, as measured by standard deviation of monthly returns.

 

• This past decade had the third highest return (out of 10) for stocks but the lowest return for bonds.

 

• For 5-year periods, the past 5 years had the seventh highest return (out of 20, so near median) for stocks and the lowest return for bonds which lost -.46 per year. Bonds were not safe.

Distributions of Annual Stock and Bond Returns

The 2020s decade-to-date has been exceptionally good for stock investors, rewarding them with 15% per year returns, which is 10.5% above inflation. The average return above inflation over the century is 7.5%, so this decade has provided a 3% per year premium so far. It’s been incredibly good, prompting many to proclaim this decade to be the “New Roaring 20s.” We all remember how the first Roaring 20s ended.

The past 17 years have been the longest bull market ever, causing concern over the US stock market becoming extremely expensive. Expensiveness is important because the price you pay always matters. How high is too high?

The Magnificent 7 are this year’s version of the Nifty 50 of the 1960s. Here’s how they performed:

But these 7 are not even close to being the best performing companies. Artificial intelligence has been the driving force recently, especially data storage companies. According to this Motley Fool article, the following are the 5 best performing stocks in 2025:   

1. SanDisk (SNDK) 590%. The clear standout, this flash memory specialist (spun off from Western Digital in February 2025) rode the AI-driven NAND flash boom to become the top performer. NAND is a contraction of “NOT AND” which refers to both fundamental digital logic gates and a type of non-volatile flash memory, both crucial in electronics

2.Western Digital (WDC) 290%. Focused on hard drives and storage, it benefited from the same AI tailwinds and the successful SanDisk spin-off.

3. Micron Technology (MU) 230%   A leader in DRAM (digital random access memory) and NAND storage for data centers, Micron capitalized on high-performance memory demand for AI applications.

4. Seagate Technology (STX) 225%    Another data storage player specializing in hard drives and enterprise solutions, boosted by the industry-wide surge.

5.Robinhood Markets (HOOD) 225%     The outlier in the group—a retail trading platform that gained from renewed stock market enthusiasm, crypto trading volume, and broader retail investor participation.

In contrast to the soaring stock market, bond returns have been disappointing so far in this decade. A loss of more than 20% in 2022 was the worst annual bond loss ever. And two years – 2021 and 2024 – saw real (inflation-adjusted) losses. Only three years (out of six) were “normal” and positive.

Asset Class Performance in the Current Decade and Year

US stocks had dominated asset class performance in this decade coming into 2025, but that changed this year with Gold and Foreign Stocks taking the lead.

Both greed and fear are in play in 2025. There’s fear that the US stock market bubble will burst, leading Warren Buffet to raise substantial cash, while greed has driven investors into gold and foreign stocks, potentially creating more bubbles in the process. Here are descriptions of how gold and foreign stocks have taken the lead in 2025, starting with gold.

A whopping 64% return on gold has everyone’s attention.

Warren Buffet advises against buying gold because it produces nothing, but it has recently held its own against stocks as shown in the following:

“Money” is a store of value and a means of exchange. Many consider gold to be better money because it doesn’t lie, and it doesn’t get revised by government bureaucrats. It doesn’t depend on congressional budget committees or Federal Reserve projections.

Gold meets the store of value definition of money, and efforts are underway to make gold an efficient means of exchange. For example, we have a gold-backed credit card (Glint) and debit card (VeraCash Mastercard). Both hold their gold in Swiss vaults. The funds you place with these companies have gold allocated to them, so these are a means to spend gold.

As for Buffet’s guidance, gold is more than just a glittery unproductive metal. It is used for jewelry, technology, central bank reserves and investing. Investing is the primary usage of gold, but the World Gold Council reports that investing is only 43% of the demand for gold, as shown in the following.The Council also reports that the recent surge in gold price is generated primarily through the purchase of gold-backed ETFs, growing 134% over the past year.

As for the relative reversal of US stocks versus the stocks in the rest of the world, history tells us that expensive stock markets do not stay expensive. In the past when P/Es have gone above 30, as they have recently, the subsequent 10-year return has averaged an annualized loss of 5%, as shown in the following.

The rise of AI stocks has suppressed this decline so far while exacerbating expensiveness. This is reminiscent of the Nifty 50 in the 1960s when trees were thought to grow to the sky and “the trend was your friend.” But investor concerns about the expensiveness of the US stock market are driving them toward relatively less expensive foreign stock markets that generated a 35% return this year as a result.

Here are the countries that delivered better performance than the US this year based on their ETFs. 2025 was an exceptionally good year for most stocks around the world.

The Venezuelan lesson

The world is repeating the Venezuelan experience of 2016. This also explains the dramatic increase in the price of gold. Venezuela’s stock market taught a lesson in 2016 when the Venezuelan stock market performed best in the world, earning 114% versus 13% on the Dow. This event has direct application to recent stock markets around the world and the price of gold. According to a Marion West Legacy article back then:

The curious case of the Venezuelan public equities market is a prime example of why it can be misleading to use stock markets as indicators of economic performance. Most economists agree that Venezuela’s economy is in turmoil, and that there is no end in sight. The real reason behind the market’s astronomical rise has little to do with ebullient investor sentiment but instead is one of the symptoms of the government’s inflationary monetary policy. In short, owners of the country’s currency protected themselves from the currency’s severe devaluation by exchanging their bolivars for seemingly safer assets, including stocks. With huge volumes of money pouring in, the stock market artificially inflated.

Off to see the Wizard

Warren Buffet is not following the herds into gold and foreign stocks. He is moving to the safety of cash instead. Is the Wizard of Omaha outsmarting the world, again? His advice is to be greedy when others are fearful and fearful when others are greedy. Fear of missing out (FOMO) is not fear – it’s greed. Here’s a Modern Portfolio Theory (MPT) contrast of Buffet versus the world. Which strategy do you prefer – more risk or less?

Cash (Treasury Bills) is an inflation hedge as well as a hedge against falling stock prices, and it’s less complicated and risky than gold and foreign stocks. Einstein advised that all should be made as simple as possible, but no simpler. The move to higher risk was rewarded in 2025. Now what?

Diversification is Working, Again

Until this year, diversification beyond the US stock market did not “work” to improve returns, but this year is different as can be seen in the performance of target date funds.

Conclusion

Buddha said, “Impermanence is eternal.” Things change. That is certainly true of capital markets. Artificial Intelligence is the current new wave that is driving the stock market to new highs, but Stein’s Law cannot be denied: If something cannot last forever, it will end. Some think the next stock market crash will be among the worst. Booms like AI are great fun but be leery of euphoria.

We hope that the next crash is not that bad, but it’s important to know that 75 million baby boomers (including me) are currently in the Retirement Risk Zone when losses can ruin the rest of life. Baby boomers should protect themselves because a retirement with dignity is at stake. “It’s better to be safe than sorry.” Boomers should follow Warren Buffet’s lead.

Despite beliefs to the contrary, the most popular qualified default investment alternatives (QDIAs) in 401(k) plans, namely target date funds, are poised to seriously disappoint those near retirement when the stock market crashes. Learn why, and what you can do, in

. Baby boomers beware. You youngsters can worry too, especially if you’re a baby boomer heir. Also know that

rather than the riskier60/40 tradition at this time.

Happy New Year. We hope 2026 is favorable and prosperous for you, and that this article is helpful to you.

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