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Since by most measures stocks are more risky than bonds then they should outperform bonds in the long term

So you're saying the more risky the asset the better it will perform? In that case, we should invest only in the most risky securities- companies with no revenues, for example.

But we don't do this, because while on a non-risk adjusted basis we expect the most risky stocks to perform the best, we live in a risk adjusted world.

For example, I expect the biotech startup I just bought shares in to have their drug approved by the FDA, causing the stock to rise 1,000% this year (non risk adjusted). But realistically there's only a 1% chance of that happening...there's a 99% chance the drug won't make it and they'll run out of cash. So my risk adjusted return is 10%.

And so it is with stocks vs bonds. We expect stocks to outperform (non risk adjusted), but we also expect them to be riskier, reducing performance.

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