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

2

Chapter

RISK, RETURN, AND

PORTFOLIO ALLOCATION

Why Stocks Are Less Risky

Than Bonds in the Long Run

As a matter of fact, what investment can we find which offers real fix-

ity or certainty income?... As every reader of this book will clearly

see, the man or woman who invests in bonds is speculating in the

general level of prices, or the purchasing power of money.

IRVINGFISHER, 1912^1

MEASURING RISK AND RETURN

Risk and return are the building blocks of finance and portfolio manage-

ment. Once the risk and expected return of each asset are specified, mod-

ern financial theory can help investors determine the best portfolios. But

23

(^1) Irving Fisher et al., How to Invest When Prices Are Rising, Scranton, Pa.: G. Lynn Sumner & Co., 1912,
p. 6.
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