1998 post
Why? Because over the long-term, stocks perform best. Let's look at a few historical numbers. The ones I use below are taken from the book Stocks for the Long Run, by Jeremy Siegel, a business professor at the Wharton School at the University of Pennsylvania.
Professor Siegel studied how stocks and other investment options (such as bonds and gold) performed over almost 200 years. He found that stocks fared best. To prove his point, he looked at what happened to a single dollar if it was invested in
1802 (only three years after George Washington died) in stocks, short-term bonds, long-term bonds, and gold. The results are impressive. In 190 years, the single dollar grew to the following sizes:
- Stocks: $3,050,000
- Long-term bonds: $6,620
- Short-term bonds: $2,934
- Gold: $13
Of course, you probably don't expect to live 190 years, right? So let's see how stocks do on average each year. Over the 190 years, stocks offered an average yearly return of 9.5%.
Let's look at a more recent period. Between 1926 (just before the big crash of 1929 that preceded the Great Depression) and 1992, stocks returned a yearly average of 12%.
Professor Siegel notes that when you factor in inflation, these averages drop a few percentage points. (But returns for any other investment option also decrease due to inflation.)
Anyway -- the big conclusion here is summed up by Professor Siegel's book title, Stocks for the Long Run. Young people who can leave their money to grow for many years should probably be in stocks.
