by Jeremy Siegel, Ph.D.
Posted on Tuesday, May 12, 2009, 12:00AM
A few weeks ago Robert Arnott, chairman of Research Affiliates, caused quite a stir by publishing a paper in the May/June edition of the 'Journal of Indexes' entitled "Bonds: Why Bother". In the paper Arnott concludes:
"For the long-term investor, stocks are supposed to add 5 percent per year over bonds. They don't. Indeed, for 10 years, 20 years, even 40 years, ordinary long-term Treasury bonds have outpaced the broad stock market."
Arnott maintains that the long-term excess return of stocks over government bonds is only 2.5 percent, not 5 percent. Although Arnott doesn't identify the source of the 5 percent premium, he claims that it is widely used by pension plans and other investment advisers.
His conclusions are clearly designed to challenge the thesis of my book, "Stocks for the Long Run", which strongly advocates a diversified portfolio of global stocks as the overwhelming choice for long-term investors. (more)
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