Bonds don’t get as much love as stocks because they are considered boring. It’s hard to get rich quick off a bond. But it is possible to see a quick windfall if you pick the right high-flying stock.

Despite the lack of sexiness in bonds, if you’re serious about achieving financial independence or are already financially independent, bonds are an integral part of your portfolio.

As my wealth has grown over the years, so has my appreciation for bonds. Bonds have not only provided me tax-efficient income and peace of mind in my post-work life, bonds have also provided me a solid return since I graduated from college in 1999.

Before I show you the 20-year annualized returns by asset class between 1999 – 2018, I want you to guess the following four things:

1) Of the following asset classes, the S&P 500, a 60/40 stock/bond portfolio, Bonds, a 40/60 stock/bond portfolio, REITs, Gold, Oil, EAFE (Europe, Asia, Far East), national real estate, which performed best?

2) What was the annualized return for the best performing asset class +/-0.5%?

3) What was the annualized return for the worst performing asset class +/- 0.5%?

4) What was the annualized return for the average active investor +/- 0.2%?

If you can guess two out of the four correctly, I’ll give you a gold star and might even take your child’s SAT or ACT exam for you.

If you only get one out of four right, you need to go run five miles immediately. If you get zero right, then you need to run five miles, do 100 sit-ups, and 100 push-ups.

There’s no way any of you are getting four out of four right.

Now that we have a deal, let’s take a look at the results to see how reality compares with your biased beliefs.

A number of people have asked me to share some different investment strategies for different life stages. What I’ll do is highlight the various investment strategies I think make sense for most people, discuss a couple more alternative investment strategies, and round up what strategy I think is most appropriate by life stage.

We all know that step one to building financial wealth starts with saving. What really widens the wealth gap over the years is HOW one invests. Before investing in anything, I encourage everyone to tell themselves five things out loud.

1) I will lose money.

2) I will feel like a complete idiot when I lose money.

3) Nothing goes up forever.

4) There are plenty of exogenous variables outside of my control.

5) No risk, no reward.

Now that you’re mentally set to invest your hard-earned savings in the stock market where one change in government law, a corrupt CEO, a terrorist attack, a natural disaster, or a declaration of war could instantly wipe out half your gains, let’s begin!

Since 2009, both the S&P 500 and the US aggregate bond market have performed well. In fact, both stocks and bonds are sitting close to their all-time highs in 2019.

The questions we should now all be thinking about are: 1) What’s next? 2) Why are both stocks and bonds at near record highs? 3) As I age, what should my asset allocation be?

In this article, I want to not only show you recommendations of different asset allocations. I want to also teach you the why. The more you can understand why these asset allocations makes sense, the more you can invest with confidence.

Don’t blindly do something without understanding the logic, especially when it comes to investing your money.

I was expecting much more backlash from coastal city folks in my article, Why Real Estate Will Always Be More Desirable Than Stocks, but instead, I got heat from folks who live in the Midwest. The general feedback was that Midwesterners never felt anti-housing rage and that I’m a fool for preferring real estate over stocks since they’ve made more money in the stock market.

Well obviously you aren’t going to feel a lot of anti-housing rage if you can buy a beautiful house for $280,000 a couple years out of school! And obviously you have a better chance of making a larger absolute return on your investment with stocks since housing is so cheap. We already know that in the long run, stocks outperform real estate, un-levered.

What I do predict with great confidence is that 20-30 years from now, the anti-housing rage will have spread to the Midwest. Money is fungible. It will go where the returns are highest. Residents from San Francisco, LA, Seattle, New York, Washington DC, and Miami will bring their bags of cash and either buy up non-coastal real estate directly through REITs or through real estate crowdfunding deals.

Making a fortune is about predicting long-term trends, and I’m certain diversity will continue to spread across America. Technology will make paying $4,600 a month for a two bedroom in a congested city like San Francisco no longer necessary because you no longer need to work in an office. By 2030, there will be more freelancers than W2 workers because today already ~35% of the American workforce are freelancers.

Every opportunity will eventually be arbitraged away. Thankfully, such trends can take decades to play out. Face reality or get left behind.