Clarifying the Myth: Long Term Investment in Stocks

Money Bizwiz Team
3 Min Read


Stocks vs. Bonds: Rethinking the Conventional Wisdom

Stocks vs. Bonds: Rethinking the Conventional Wisdom

Editor’s Note: This is the final article in a three-part series that challenges the conventional wisdom that stocks always outperform bonds over the long term and that a negative correlation between bonds and stocks leads to effective diversification. In it, Edward McQuarrie draws from his research analyzing US stock and bond records dating back to 1792.

CFA Institute Research and Policy Center recently hosted a panel discussion comprising McQuarrie, Rob Arnott, Elroy Dimson, Roger Ibbotson, and Jeremy Siegel. Laurence B. Siegel moderated and Marg Franklin, CFA, president and CEO of CFA Institute introduced the debate.

Edward McQuarrie:

In my first two blog posts, I reviewed the new historical findings presented in my Financial Analysts Journal paper. Relative to when Jeremy Siegel first formulated the Stocks for the Long Run thesis 30 years ago, better and more complete information on 19th-century US stock and bond returns has emerged. Likewise, courtesy of the work of Dimson and others, a far richer and more complete understanding of international returns is now in hand.

I summarized the new historical findings in my paper’s title: “Stocks for the Long Run? Sometimes Yes, Sometimes No.”

In this concluding post, I will highlight the implications of these new findings for investors today. I will address several misconceptions that I’ve encountered interacting with readers of the paper.

Misconception #1: McQuarrie doubts whether stocks are a good investment over the long term.

Nope. Rather, I want you to adjust your expectations for the long-term wealth accumulation that you can expect from holding stocks, especially a 100% stock portfolio, over your idiosyncratic personal time horizon.

Here’s why I think some adjustment of expectations is necessary.

Let me first acknowledge that no author is responsible for what readers do with their work once published and diffused, so what follows is not a criticism of Siegel or his research.

That said, some readers of Siegel’s Stocks for the Long Run conclude: “If I can hold for decades, stocks are a sure thing, a no-lose proposition. It could be a wild ride over the short-term, but not over the long-term, where buying and holding a broad stock index essentially guarantees a strong return.”

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