Historical Annual Yield Comparison: Stock Index vs. Bonds

Historically, stocks have offered higher returns over the long term, but with greater volatility. Meanwhile, bonds have provided steadier, though typically lower, yields. Factors such as interest rates, inflation, economic growth and market sentiment all influence whether stocks or bonds outperform in a given year. Knowing how these variables have played out historically — especially during turbulent periods like the Great Depression, the Great Recession and the COVID-19 pandemic — can help you make informed decisions tailored to your risk tolerance and financial goals.

If you want to build a balanced portfolio, a financial advisor can help you evaluate investments and optimize your long-term returns.

Stock Index vs. Bond Yields: Basics

Stocks represent ownership in companies and offer the potential for growth through capital appreciation and dividends. Bonds, comparatively, are debt instruments that provide regular interest payments and are generally considered less volatile.

Several factors influence the performance of stocks and bonds:

Interest rates: Rising interest rates can lead to higher bond yields, but may negatively impact stock prices as borrowing costs increase.
Economic growth: Strong economic growth tends to favor stocks due to higher corporate earnings, while bonds may underperform in such environments.
Inflation: High inflation erodes the purchasing power of fixed-income returns, making stocks more attractive if companies can pass on costs to consumers.
Investor sentiment: During periods of uncertainty, investors often flock to bonds for safety, driving yields down and impacting stock performance.

Stock Index vs. Bond Yields: Year By Year

Examining the annual performance of stocks and bonds provides insights into their long-term behavior. Data from NYU Stern School of Business reveals that from 1928 to 2024, the S&P 500 delivered an average annual return of approximately 11.79%, while 10-year U.S. Treasury bonds averaged around 4.79%.

That might not sound like much of a difference. When you take into account the power of compounding returns year after year, however, the difference is stark: $100 invested in the S&P 500 (including dividends) would be worth $982,817.82 today. In contrast, the same amount invested in 10-year U.S. Treasury bonds would only be worth $7,159.45.

This difference in total return highlights why advisors often recommend younger investors weight their asset allocation more towards stocks than bonds. Younger investors are also better equipped to deal with stock market fluctuations. The younger you are, the more time you have to wait for the stock market to recover from its downturns.

Meanwhile, those approaching or in retirement want to focus more on capital preservation. That is because one or two down years in the stock market could seriously undermine their investment portfolios, at a time when they rely on it the most.

This is where bonds play a role. In years of economic downturns or market volatility, bonds often outperformed stocks. For example, during 2008, the S&P 500 declined by almost 37%, whereas 10-year Treasuries returned more than 20%.

Stock Index vs. Bond Yields: Great Depression (1929 to 1939)

Investors comparing stock index and bond returns.

The Great Depression was a period of significant economic turmoil, with the stock market experiencing a severe downturn. During this depression, the S&P 500 saw substantial losses, with a cumulative decline of approximately 83% from 1929 to 1932.

In contrast, bonds provided relative stability. For example, 10-year Treasury bonds maintained positive returns during several years of this decade.

The year-by-year difference between stock index returns and bond yields during the Great Depression highlights why diversification matters. It also shows how bonds can help protect your money during major market downturns.

Stock Index vs. Bond Yields: Great Recession (2007 to 2009)

The Great Recession, triggered by the housing market collapse, led to significant declines in stock markets. In 2008, the S&P 500 dropped by 37%, marking one of its worst annual performances. During this recession, bonds served as a safe haven. Investors who held 10-year Treasury bonds saw positive returns even as stocks recorded historic downturns.

These numbers further highlight the protective role bonds can play in a diversified investment strategy.

Stock Index vs. Bond Yields: COVID-19 Recession (2020)

The COVID-19 pandemic caused major disruptions in global markets. In early 2020, the S&P 500 dropped sharply by about 34% from its peak before recovering by the end of the year. At the same time, 10-year Treasury yields fell to historic lows because many investors moved their money into safer assets, which increased demand and pushed Treasury prices up.

This shift highlights how stocks and bonds typically respond in opposite ways during a crisis. When stocks lose value, bonds often gain or hold steady, helping to limit overall losses. This contrast shows why maintaining a balanced portfolio can reduce risk in turbulent times.

Frequently Asked Questions

How Does Volatility Affect Stock Index and Bond Yields?

Volatility often leads investors to seek safer investments. During turbulent times, stocks may experience sharp declines. Meanwhile, bonds in general and government securities in particular tend to attract investors, driving yields down. This inverse relationship between stock and bond prices can help stabilize a diversified portfolio.

Can Bonds Outperform Stocks Over the Long Term?

While stocks generally offer higher long-term returns, there are periods where bonds outperform, especially during prolonged market downturns or economic recessions. For example, during the early 2000s, bonds provided better returns than stocks over several years.

How Should Investors Balance Stocks and Bonds in Their Portfolios?

The appropriate balance depends on individual risk tolerance, investment goals and time horizon. Younger investors might favor a higher allocation to stocks for growth potential, while those nearing retirement may prefer bonds for income and capital preservation. Regularly reviewing and adjusting the asset mix is essential to align with changing financial objectives.

Bottom Line

An investor meeting with a financial advisor to discuss their investment portfolio.

Analyzing the stock index vs. bond yields year by year can help provide valuable insights into the dynamics of these asset classes. While stocks offer growth potential, they come with higher volatility. Bonds, on the other hand, provide stability and income, especially during market downturns. A well-diversified portfolio that balances both can help investors navigate various economic cycles and achieve long-term financial goals. Consulting with a financial advisor can further tailor investment strategies to individual needs and risk profiles.

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