A number of articles were written at the end of 2008 noting the fact that, for the prior 40-year period, stocks had not outperformed safer bonds. For the period 1969 through 2008, the S&P 500 Index returned 9%, and so did long-term (20-year) Treasury bonds. Results for large-cap growth and small-cap growth stocks were even worse. The Fama-French large-cap growth index returned 7.8%, while the small-cap growth index returned just 5.1%.
Making matters worse, while producing the same returns as long-term Treasurys, the S&P 500 Index experienced far greater volatility. Its annual standard deviation during the period was 15.4% compared with just 10.6% for Treasurys. That equities could underperform Treasurys for 40 years surprised many people, but it really shouldn’t have. No matter how long the horizon, there must be at least some risk that stocks will underperform safer investments.
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