05 Feb Which Asset Class is Best for Long Term Wealth
Jeremy Siegel is the Professor of Finance at the Wharton School of the University of Pennsylvania in Philadelphia and has been since 1976. This guy has been given too many awards to list. Suffice it to say he is someone worth listening to when it comes to investing.
He is possibly most famous for the popular book he authored, Stocks for the Long Run.
In his book Siegel did a huge amount of data crunching going all the way back to 1802. What he found was, taking $1 and investing in 1802 and reinvesting consistently resulted in the following by the end of 1997
|
Stocks |
$7,470,000 |
| Bonds |
$10,744 |
| Bills |
$3,679 |
| Gold |
$13.37 |
| CPI |
$11.17 |
Stocks beat bonds, bills, gold and cash
The level of outperformance of stocks here is truly extraordinary and it illustrates just why it is so important to have a good portion of your portfolio allocated to stocks.
Siegel concludes his book with the following points
- Stocks should constitute the overwhelming proportion of all long-term financial portfolios
- Invest the largest percentage in highly diversified index funds with low expense ratios (ETFs are perfect for this)
- Place up to one-quarter of your stocks in mid and small cap ETFs
- Allocate about one-quarter of your stock portfolio to international equities (something we 100% agree with)
- Maximise your contribution to your tax-deferred account (think Superannuation)
To be a successful long-term investor is easy in principle, but difficult in practice. It is easy in principle because buying and holding a diversified portfolio of stocks is available to all investors, no matter their knowledge, judgement or financial status. Yet it is difficult in practice since tales of those who achieved great wealth in the market tempt many people to play a game very different from that of the long-term investor.
Unless you can dedicate a lot of time and research to your investing, trying to beat the market leads to disastrous results.
Luckily for us, we can dedicate a lot of time to researching markets and finding opportunities because it is our full-time profession here at Capital 19 and luckily for you, we share our findings through our model portfolios which you can find here.
Conclusion
The stock market is exciting. Its daily movements dominate the financial press and record the flows of billions of dollars of investment capital. It is this very excitement that can throw us off course. But all we need to do is stay the course and let stocks do their thing and our long-term results should be better than any other choice of investment.