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Dr. Paul Price
Dr. Paul Price
Articles (513)  | Author's Website |

Despite the 2-year rise there's still reason to be optimistic

March 20, 2011

Wharton professor Jeremy Siegel loves to compile statistics and his latest batch put things into a longer-term perspective than most investors typically focus on these days. Siegel tracked market performance following extreme performance periods to see if reversion to the mean was to be expected over the next five and ten-year periods.

His results were no surprise as the worst performances were the preludes to better numbers in both the subsequent 5 and 10-year periods. The converse was also true with stellar 5 and 10-year performances that led to well below average numbers in the years to come.


Siegel’s graphs give inflation adjusted returns but do not account for taxes or frictional trading costs.

The worst 20-year period ended in 1948 with just a 1.04% annualized total return. The next two decades (ended 1968) showed the best annualized results at 12.63%. Even though we’ve come up about 80% off the 2009 low the market’s trailing 5-year total returns still show far below normal. That leaves plenty of room for further regression to the mean and above average returns over the next 3 – 7 years.

There have never been any 20-year or 30-year periods when stocks showed negative inflation-adjusted annualized returns. Siegel found numerous rolling 20 and 30-year time periods when Treasury bond buyers experienced (inflation-adjusted) losses.

The conclusions…

We could still see decent stock market performance even after a two-year rebound from the outsized losses ended in March 2009.

Over the long term your financial security is higher by remaining in stocks than in trying to avoid risk by owning ‘risk free’ treasuries. It’s been the bonds that have often failed to keep pace with inflation- something that’s never happened with equities.

Dr. Paul Price: www.BeatingBuffett.com www.OptionsProfits.com

March 20, 2011

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Dr. Paul Price


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Rating: 2.6/5 (5 votes)


Superguru - 6 years ago    Report SPAM
why do people use "treasuries" and "bonds" interchangeably. There are munis, corps, high yield corps , international and emerging bonds.

Do these asset classes correlate?

Do munis fall as much as others in rising interest rate env I expect we should be in an year or so.

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