Over the past 210 years, a diversified portfolio of U.S. common stocks has achieved a compounded annual real rate of return of 6%-7%, and its long-term performance has been exceptionally stable.
It is true that stocks are riskier in the short term than fixed income assets. But history has proven that for long-term investors whose goal is to secure the purchasing power of their wealth, stocks are actually less risky than bonds over the long term. Inflation Uncertainty is a chronic disease of the paper currency standard system , which means that "fixed income" and "fixed purchasing power" are not the same thing. Irving Fisher made this mistake a century ago.
Although inflation has fallen sharply over the past decade, we are still uncertain about the future value of the U.S. dollar, particularly in the context of large government fiscal deficits and subsequent loose monetary policies by central banks around the world. Historical data shows that we should trust the purchasing power of a diversified portfolio of common stocks with a holding period of 30 years more than the purchasing power of 30-year U.S. Treasury bonds.
