Why Stocks Beat Bonds

Rapid economic growth isn't necessary to generate healthy stock-market returns.

Granted, it's been a rough decade for stock-market investors. But even if you include the past ten years, the long-term return on stocks has been between 6% and 7% per year after inflation. And that return has dominated all other asset classes. Recently, a few investment gurus -- led by Pimco's Bill Gross and Mohamed El-Erian -- have predicted that future returns on stocks will disappoint investors. They've coined the term new normal to represent the slow-growth economy -- and diminished stock returns -- that they believe investors can expect in the future.

But I would take issue with their assumptions. Rapid economic growth isn't necessary to generate healthy stock-market returns. In fact, based solely on current share prices and the market's current earnings power, stocks should be very rewarding for long-term investors.

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Jeremy J. Siegel
Contributing Columnist, Kiplinger's Personal Finance
Siegel is a professor at the University of Pennsylvania's Wharton School and the author of "Stocks For The Long Run" and "The Future For Investors."