Last year was a typical year for stocks, with the Standard & Poor’s 500 Index
returning 10.9 percent per year, including dividends. According to Ibbotson
Associates, Chicago, small-company stocks (the bottom 20 percent of the market,
by the value of outstanding shares) returned 18.4 percent. Long-term government
bonds returned 9.4 percent while 30-day Treasury bills returned a mere 1.2
percent, far below the inflation rate of 3.9 percent .
Ibbotson provides the following long-term results, for 79 years, from 1926
through 2004:
- Large-company stocks returned 10.4 percent per year.
- Small-company stocks returned 12.7 percent per year.
- Long-term government bonds returned 5.5 percent per year.
- 30-day Treasury bills returned 3.7 percent per year.
- Inflation averaged 3.0 percent per year.
From these numbers, you can see why it’s vital to keep a large portion of your
portfolio in stocks, including some small-company stocks, if you want to earn
superior long-term returns.
