Question

Risk and Return. We have seen that over long periods of time, stock investments have tended to substantially outperform bond investments. However, it is not at all uncommon to observe investors with long horizons holding entirely bonds. Are such investors irrational?

Answer 1

No they are not irrational. They are risk averse

Step-by-step explanation:

As a general rule the higher the returns on an investment the higher the risk of losing one's funds invested, and the lower the returns the lower the risk.

Bonds have lower returns than stocks but for investors that have long horizon holdings they would prefer investing in bonds.

This is because they are risk averse and the risk in bonds is low.

They are willing to make low returns over a long time than to risk losing their investment on stocks that are riskier