Risk versus Return: why stocks are less risky than bonds

This great article from the author of Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market talks about how bonds, over time, are actually riskier than stocks.

I have a few financial quirks. One is, whatever my college roommate does -- do the same thing. This was someone who saved money while paying for private school. This was someone who turned around and paid off $30,000 in student loans in 3 years. If she decides to invest, I invest. If she saves with PayPal, I save with PayPal. You get the picture.

The other thing is, whatever my parents do -- do the opposite. This is because my parents have perpetual bad luck with financial ventures of all kinds. They buy cars that blow up, die, depreciate madly, lose their paintjobs, etc. They currently own four cars between the two of them. They invest in stocks and the moment the stocks tank, they pull out their money and reinvest in bonds without waiting for their stocks to recover. My dad bought gold low and now that gold is high, he refuses to sell. The list goes on and on...

Anyway, my dad thinks bonds are the greatest thing since sliced bread. I have always thought bonds are a rip-off, and this confirms it. I love the risk of the stock market, to tell you the truth. And I especially love the fact that -- hey, I'm 31 years old! If my stocks tank, I have another 34 years to let them recover, or to remake that money, or whatever. I don't understand people in their 20s who are terrified of losing money in investments. Did you drink a latte this morning? You just threw $3 down the drain. Go to parties? Impulse shop? Drink alcohol? All these things cause you to lose money. So why the hell do you care if you lose a few hundred in stocks? I lost several thousand investing in a private college education, and I'm losing thousands more on interest from my student loans. The nice part about stocks (as well as the education, as it were) is that I actually stand to get money back. What could be more fabulous?

Here's the graphic. I love hard facts that go against people's general ideas. It makes me feel all warm and gooey inside. :) As you can see, treasury bonds and stocks carry the same risk of 6.9, but the rate of return on the stocks is 2.575 times higher than the rate of return on bonds. Inflation-protected bonds carry slighly less risk but the rate of return is even less than regular bonds and rate of return is 68% less than that of the stocks. Ouch!

I'll pick the stocks, thank you.