For
investors seeking long-term growth, stock and stock mutual
funds are usually the meat and potatoes of their investment
portfolio.
Although your stock investments can increase and decrease
significantly in value over the short term, the longer
you stay in the stock market, the more likely you are to
come out ahead. That's why most financial experts agree
that the younger you are, the more you should stress stocks
in your portfolio. If you begin investing early, you have
time to ride out the inevitable ups and downs in the stock
market.
Professor
Roger Ibbotson, Yale University, chairman and founder
of Ibbotson Associates
Roger
Ibbotson discusses how stocks may perform in the future.
Some studies
suggest that future stock returns will be lower than
past returns. One study even suggests that the future
equity risk
premium will be negative, meaning that stocks will
not beat bonds in the future.
Over the past 76 years, stocks have provided an annualized
return of approximately 11% per year. Of that return, according
to Ibbotson research, 1.25% was from an increase in the price-to-earnings
ratio (P/E) — the rest was from actual earnings,
dividends, and inflation growth. Since the P/E ratio is
unlikely to double again as it did in the past, we should
expect equity returns slightly below the historical average
going forward. However, there is still good reason to believe
that stocks will continue to provide significant returns
over the long term. We're projecting an average annual
return on stocksgoing forward of about 9%.
For
investors seeking long-term growth, stock and stock mutual
funds are usually the meat and potatoes of their investment
portfolio. 
Professor
Roger Ibbotson, Yale University, chairman and founder
of Ibbotson Associates 