A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

RANGE OF ANNUAL RETURN
RATES ON COMMON STOCKS
FOR VARIOUS TIME PERIODS,
1950–2009

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Over investment periods of twenty or thirty years, stocks
have generally been the clear winners, as is shown in the table
below. These data further support the advice that younger

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people should have a larger proportion of their assets in
stocks than older people.
PROBABILITY 
THAT 
STOCKS 
OUTPERFORM
BONDS (PERCENTAGE OF PERIODS SINCE 1802
WHEN RETURNS OF STOCKS EXCEED THE
RETURN FROM BONDS)
Investment
Period
Percentage of periods when stocks have
outperformed bonds
1 Year
60.2
2 Years
64.7
5 Years
69.5
10 Years
79.7
20 Years
91.3
30 Years
99.4
I do not mean to argue that stocks are not risky over long
holding periods. Certainly the variability of the final value of
your portfolio does increase the longer you hold your stocks.

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And we know that investors have experienced decades during
which common stocks have produced near-zero overall
returns. But for investors whose holding periods can be
measured in twenty-five years or more, and especially those
who reinvest their dividends and even add to their holdings
through dollar-cost averaging, common stocks are very likely
to provide higher returns than are available from safe bonds
and even safer government-guaranteed savings accounts.
Finally, perhaps the most important reason for investors
to become more conservative with age is that they have fewer
years of paid labor ahead of them. Thus, they cannot count
on salary income to sustain them if the stock market has a
period of negative returns. Reverses in the stock market could
then directly affect an individual’s standard of living, and the
steadier—even if smaller—returns from bonds represent the
more prudent investment stance. Hence, stocks should make
up a smaller proportion of their assets.