Stocks for the long run

The answer is almost surely no. At a time horizon of a decade or two, the past performance of stocks and bonds is neither a reliable guarantee nor a good guide to future results. Periods like 1998-2008, in which stocks do relatively badly, are preceded by periods -- like 1978-1988 and 1988-1998 -- in which they do relatively well, and are in all likelihood followed by similar periods.

Do the math. At the moment, the yield-to-maturity of the 10-year US Treasury bond is 3.76 percent. Subtract 2.5 percent for inflation, and you get a benchmark expected real return of 1.26 percent.

Meanwhile, the earnings yield on the stocks that make up the S&;P composite is fluctuating around 6 percent: that is how much money the corporations that underpin the stocks are making for their shareholders.

Some of that money will be paid out in dividends. Some will be used to buy back stock -- thus concentrating the equity and raising the value of the stock that is not bought back. Some will be reinvested and used to boost the company's capital stock.... Thus, the expected fundamental real return on diversified US stock portfolios right now is in the range of 6 percent to 7 percent....