With interest rates on Treasuries in the range of 3-4%, and cash yields in the range of 1-2%, it's worthwhile noting the long-term track record of equities. Equities may be in a bear market so far this year, but I've noted in earlier posts that equities look attractive because they are undervalued by some measures. This chart reinforces the point. Over time, the S&P 500 index has averaged gains of about 8% a year; if you add in dividends, then the total return on equities has been almost 10% per year. There are periods when equities underperform, as now, but they are followed by periods of outperformance, such as we saw in the 1980s. If you are concerned about stocks and prefer cash, you are giving up a lot of potential gains in exchange for insurance against further losses.
Wednesday, September 10, 2008
Long-term track record of equities
With interest rates on Treasuries in the range of 3-4%, and cash yields in the range of 1-2%, it's worthwhile noting the long-term track record of equities. Equities may be in a bear market so far this year, but I've noted in earlier posts that equities look attractive because they are undervalued by some measures. This chart reinforces the point. Over time, the S&P 500 index has averaged gains of about 8% a year; if you add in dividends, then the total return on equities has been almost 10% per year. There are periods when equities underperform, as now, but they are followed by periods of outperformance, such as we saw in the 1980s. If you are concerned about stocks and prefer cash, you are giving up a lot of potential gains in exchange for insurance against further losses.
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