Finally, on the Brink of Dow 36,000

The main thrust of our book was that buying and holding a diversified stock portfolio is by far the best strategy.

Photo of Wall Street bull sculpture
(Image credit: Getty Images)

In early 1998, my American Enterprise Institute colleague Kevin Hassett, a well-credentialed academic who would later become chairman of the Council of Economic Advisers during the Trump administration, came to me with an idea. Over the previous three-fourths of a century, stocks had returned an annual average of about 11% and government bonds 5.5%. Yet over the long run, stocks were no more risky than bonds—a phenomenon that economist Jeremy Siegel had demonstrated in his 1994 classic, Stocks for the Long Run. “It is very significant,” Siegel wrote, “that stocks, in contrast to bonds or bills, have never delivered to investors a negative real return over periods lasting 17 years or more.”

In other words, stocks carried a big premium compared with bonds to compensate investors for the extra risk they were taking, but there was no extra risk!

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James K. Glassman
Contributing Columnist, Kiplinger's Personal Finance
James K. Glassman is a visiting fellow at the American Enterprise Institute. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence.