Stocks for the Long Run : the Definitive Guide to Financial Market Returns and Long-term Investment Strategies

You have to go back more than 1^1 ⁄ 2 centuries to the period from 1831

through 1861 to find any 30-year period during which the return on ei-

ther long- or short-term bonds exceeded that on equities. The domi-

nance of stocks over fixed-income securities is overwhelming for

investors with long horizons.

THE FALL IN FIXED-INCOME RETURNS

Although the returns on equities have fully compensated stock investors

for the increased inflation since World War II, the returns on fixed-

income securities have not. The change in the monetary standard from

gold to paper had a far greater impact on the returns of fixed-income

assets than on stocks. It is clear that the buyers of long-term bonds in the

1940s, 1950s, and early 1960s did not recognize the inflationary conse-

quences of the change in monetary regime. How else can you explain

CHAPTER 1 Stock and Bond Returns Since 1802 15

TABLE 1–2

Fixed-Income Returns, 1802 through December 2006