What has been the long-term return of stocks?
Since 1940, the average return of the largest companies, the Standard and Poor’s 500 Index, is around 13%. From 1940 to 2000, the S&P 500 has increased in value 47 years out of 61 years, and decreased in value 14 years. In other words, about three out of four years the market rises. Moreover, in the 46 “up” years, the average return was a gain of around 20%. The 14 “down” years the average loss was about 9 1/2%. Because of these historical facts, most financial planners and advisors recommend that investors with a long-term perspective consider substantial investments in stocks or stock mutual funds. However, there is substantial disagreement about traditional asset allocation and the long term view of most financial advisors that stocks are safer than bonds. We do not believe that stocks are safer than bonds over the period of time for a retiree’s life, nor do we believe that traditional asset allocation (a.k.a Diversification,) is the best long term strategy for the period 2004-2022.
