Long-term returns

But an interesting thing starts to happen when you look at the after-inflation performance of stocks over longer holding periods — say 5, 10, 20, or 30 years.

In every 5-year holding period since 1802, the worst performance in stocks, at -11% after inflation, has only been slightly worse than the worst performance in bonds or bills, at -10% after inflation, although they have the reputation of being stable investments.

Over every 10-year holding period, stocks have always outperformed bonds and bills — never losing more than 4.1% — while bonds and bills have lost 5.4% and 5.1% respectively.

Over every 20-year holding period since 1802, stocks have always had a return higher than the rate of inflation, while bonds and bills have fallen 3% per year behind the rate of inflation for this period. (A 3% annual loss over 20 years wipes out half the purchasing power of a portfolio.)

For 30-year periods, the worst annual stock performance remained ahead of inflation by 2.6% per year — that's just below the average 30-year return on fixed-income assets.

There is no guarantee that the stock market will continue to perform in the future as it has in the past. But since 1802, stocks have outpaced every other asset class over every holding period of 10 years or more, and have beaten inflation over every period of 20 years or more.

Although it might appear to be riskier to hold stocks than bonds, precisely the opposite is true: Stocks are the safest long-term investment if what you want to do is preserve your purchasing power and build the value of your portfolio.

Jeremy Siegel, The Wharton School

Why stocks?
See how stocks become safer investments over longer holding periods.

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