What History Teaches Us<\/strong><\/h3>\nIf there\u2019s anything the day-by-day machinations of the market teach us, it\u2019s that slow and steady wins the race<\/strong>. Investors have long known that staying the course is one of the most important things to do \u2013 it\u2019s just emotionally hard to execute. Some of the best research on this topic comes from the so-called \u201cWizard of Wharton\u201d \u2013 University of Pennsylvania professor Jeremy Siegel. In his New York Times best-selling book, Stocks for the Long Run<\/em>, Siegel looked at the performance of equities from 1802 through 1997, the year the book was first published.<\/p>\nHis findings were astonishing: Despite the day-to-day volatility that we all feel, the actual long-run returns of stocks are remarkably consistent.<\/p>\n
Here\u2019s how he summarized his findings:<\/p>\n
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Source: Jeremy Spiegel. \u201cTotal Return Index.\u201d Stocks for the Long Run, 1994<\/em><\/h6>\n <\/p>\n
\u201cDespite extraordinary changes in the economic, social, and political environment over the past two centuries, stocks have yielded between 6.6 and 7.2 percent per year after inflation in all major subperiods. The wiggles on the stock return line represent the bull and bear markets that equities have suffered throughout history. The long-term perspective radically changes one\u2019s view of the risk of stocks. The short-term fluctuations in market, which loom so large to investors, have little to do with the long-term accumulation of wealth.<\/p>\n
His last line bears repeating: The short-term fluctuations in market, which loom so large to investors, have little to do with the long-term accumulation of wealth.<\/strong><\/p>\nSiegel found that almost no matter what period you looked at, stocks delivered about 7% after inflation. The Civil War, World War I, World War II, even the Great Depression (marked by the second black vertical line) were hiccups compared to the overall trend.<\/p>\n
The pattern repeats in other countries, including those that have experienced catastrophic collapses. World War II, for example, sheared 90% off the value of German equities \u2026 but German stocks completely rebounded by 1958, rising 30% per year on average from 1948 to 1960. They went on from there to new highs. Averaged out over the long haul, their return is a consistent 6.6% annual real return \u2026 a figure that continues through this day.<\/p>\n
The same is true for Japan, the UK, and all other markets that Siegel has studied; in the short-run, volatility, but in the long run, profits.<\/p>\n
\u00a0<\/strong>Don\u2019t Buy What They\u2019re Selling<\/strong><\/h3>\nThe reason we don\u2019t hear much about the power of long-term investing \u2013 and the truth about the futility of trading \u2013 is that long-term investing is boring and cheap. The financial media thrives by encouraging you to panic, and large parts of the financial industry make money only when you act. Big moves sell newspapers, and high trading activity means commissions for online brokers. The only people who don\u2019t profit from that activity are investors themselves, because as it turns out, we can\u2019t predict the future.<\/p>\n
His findings were astonishing: Despite the day-to-day volatility that we all feel, the actual long-run returns of stocks are remarkably consistent.<\/p>\n
Here\u2019s how he summarized his findings:<\/p>\n
<\/p>\n
Source: Jeremy Spiegel. \u201cTotal Return Index.\u201d Stocks for the Long Run, 1994<\/em><\/h6>\n <\/p>\n
\u201cDespite extraordinary changes in the economic, social, and political environment over the past two centuries, stocks have yielded between 6.6 and 7.2 percent per year after inflation in all major subperiods. The wiggles on the stock return line represent the bull and bear markets that equities have suffered throughout history. The long-term perspective radically changes one\u2019s view of the risk of stocks. The short-term fluctuations in market, which loom so large to investors, have little to do with the long-term accumulation of wealth.<\/p>\n
His last line bears repeating: The short-term fluctuations in market, which loom so large to investors, have little to do with the long-term accumulation of wealth.<\/strong><\/p>\nSiegel found that almost no matter what period you looked at, stocks delivered about 7% after inflation. The Civil War, World War I, World War II, even the Great Depression (marked by the second black vertical line) were hiccups compared to the overall trend.<\/p>\n
The pattern repeats in other countries, including those that have experienced catastrophic collapses. World War II, for example, sheared 90% off the value of German equities \u2026 but German stocks completely rebounded by 1958, rising 30% per year on average from 1948 to 1960. They went on from there to new highs. Averaged out over the long haul, their return is a consistent 6.6% annual real return \u2026 a figure that continues through this day.<\/p>\n
The same is true for Japan, the UK, and all other markets that Siegel has studied; in the short-run, volatility, but in the long run, profits.<\/p>\n
\u00a0<\/strong>Don\u2019t Buy What They\u2019re Selling<\/strong><\/h3>\nThe reason we don\u2019t hear much about the power of long-term investing \u2013 and the truth about the futility of trading \u2013 is that long-term investing is boring and cheap. The financial media thrives by encouraging you to panic, and large parts of the financial industry make money only when you act. Big moves sell newspapers, and high trading activity means commissions for online brokers. The only people who don\u2019t profit from that activity are investors themselves, because as it turns out, we can\u2019t predict the future.<\/p>\n
Siegel found that almost no matter what period you looked at, stocks delivered about 7% after inflation. The Civil War, World War I, World War II, even the Great Depression (marked by the second black vertical line) were hiccups compared to the overall trend.<\/p>\n
The pattern repeats in other countries, including those that have experienced catastrophic collapses. World War II, for example, sheared 90% off the value of German equities \u2026 but German stocks completely rebounded by 1958, rising 30% per year on average from 1948 to 1960. They went on from there to new highs. Averaged out over the long haul, their return is a consistent 6.6% annual real return \u2026 a figure that continues through this day.<\/p>\n
The same is true for Japan, the UK, and all other markets that Siegel has studied; in the short-run, volatility, but in the long run, profits.<\/p>\n