In his 2004 Investment Classic, “Stocks For The Long-Run”, Jeremy Siegel analyzed 200 years (1802-2002) of investment returns for U.S. stocks, government bonds, gold and the dollar.  He then adjusted the returns for inflation to arrive at an annualized real (after inflation) return on each asset class.  In the fifth edition of his book, published in 2014, he extended the time frame to 210 years (1802-2012).


The real (after inflation) annualized returns over the 210 year period were as follows: U.S. stocks 6.6%, long-term government bonds 3.6%, short-term treasury bills 2.7%, gold 0.7% and the dollar minus 1.4%.  Inflation over the period averaged 1.4% annually, which accounted for the dollar’s 1.4% yearly decline.


Professor Siegel stated that “Over the past 210 years, the compound real return on a diversified portfolio of common stocks has been between 6% and 7% in the U.S., and it has displayed a remarkable consistency over time.” – 6.6% annually for the entire period and 6.4% a year since 1946.  But, since no one can invest for 210 years, nor are they likely to even for 70 years (since 1946), how have investors fared over more realistic time horizons?


Below are two tables covering a total of 30 years.  The first table shows the results, both before and after inflation, the Standard & Poor’s 500 Stock Index for periods ranging from 30 years down to 5 years.  The second table shows the results of breaking the 30 years down into 6 investment periods of 5 years each.


Standard & Poor’s 500 Stock Index

Annualized Returns

Holding Period Total Return Inflation After Inflation
1985 – 2015 (30 years) 10.42% 2.81% 7.61%
1990 – 2015 (25 years) 9.84% 2.46% 7.38%
1995 – 2015 (20 years) 8.18% 2.32% 5.86%
2000 – 2015 (15 years) 4.96% 2.13% 2.83%
2005 – 2015 (10 years) 7.29% 1.98% 5.31%
2010 – 2015 (5 years) 12.55% 1.70% 10.85%






Annualized Returns 5 Years

Holding Period Total Return Inflation After Inflation
1985 – 1990 (5 years) 13.35% 4.49% 8.86%
1990 – 1995 (5 years) 16.74% 3.17% 13.57%
1995 – 2000 (5 years) 18.44% 2.93% 15.51%
2000 – 2005 (5 years) 0.45% 2.44% -1.99%
2005 – 2010 (5 years) 2.27% 2.18% 0.09%
2010 – 2015 (5 years) 12.55% 1.70% 10.85%


S&P 500 returns (dividends included).

Robert Shiller and Yahoo Finance.


As you can see, the only period that failed to beat inflation was the 5 years from 2000 to 2005, when the after inflation return fell by an average of 1.99% a year.  By way of explanation, the year 2000 marked the bursting of the internet market bubble which was followed by a 30-month bear (declining ) market and a 49.1% collapse in the price of the Standard & Poor’s 500 Stock Index.


Professor Siegel contends that “The focus of long-term investors should be the growth of purchasing power of their investments – that is, the creation of wealth, adjusted for the effects of inflation”.  According to his study, from 1946-2012, stocks before and after inflation returns were 10.5% and 6.4% respectively.  Long-term government bonds during the same period returned 6.0% before and 2.0% after inflation.


So, both stocks and bonds have exceeded Professor Siegel’s test of increasing the investor’s purchasing power over the long-run.  Stocks have historically produced stronger growth potential along with a higher degree of price volatility, while bonds have provided more stability and income as well as diversification to help manage for market downturns.


For many years, a portfolio of 60% stocks and 40% bonds has been considered a “balanced portfolio” by professional investors.  Using the above post-war (1946-2012) returns from Dr. Siegel’s study, a balanced portfolio produced nominal (before inflation) returns of 8.7% a year and real (after inflation) returns of 4.64% a year.


Aggressive investors can tilt more toward stocks and conservative ones more toward bonds, but we believe it would be hard to make a case for significantly different results than those found in Professor Siegel’s massive long-term study.


Bill Boyd

Bill Boyd, CFA




① Stocks For The Long-Run by Dr. Jeremy Siegel, Fifth Edition McGraw Hill 2014


② 10.5% x 60% + 6.0% x 40% = 8.70% before inflation

6.4% x 60% + 2.0% x 40% = 4.64% after inflation

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Stock investing involves risk including loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.