Stocks – An Investment Strategy That Has Stood the Test of Time

Equities are among the best long-term investments, despite being terrifying in the short term.

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Jeremy Siegel’s Stocks for the Long Run has long been considered somewhat of a “bible” for investors and has recently been updated to include the Great Panic of 2008. One of the most interesting charts in the book shows the average annual returns of the major asset classes from 1802-2012 (see below).  These are inflation-adjusted figures also known as ‘real returns’.  Siegel concluded that over the 210 years, the real return of a broadly diversified stock portfolio has averaged 6.6% a year.  That would have resulted in the doubling of one’s purchasing power about every decade for the past two centuries.

Real Return on Stocks (Chart)

Over time the other asset classes like gold, the dollar and bonds get the spotlight temporarily; however nothing has stood the test of time like equities.  Surprisingly, as the chart illustrates, gold struggled to even keep up with inflation.  Meanwhile equities outperformed every other major asset class handily in spite of all the ups and downs.  There seems to be a substantial reward for dealing with the volatility that makes equities one of the best long-term investments.  So despite being terrifying in the short term, if you are looking for long-term growth, a well-diversified equity portfolio should be considered.

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