What A Fool Believes

Thirty years ago, in April 1979, the top song on the Billboard charts was “What a Fool Believes” by the Doobie Brothers.

On April 16th, 1979 the Dow Jones average was 857. In 2009 dollars that was 2502, using this handy inflation calculator. Today, April 14, 2009 the Dow closed at 7920. That is a 7.7% annual return. The yield on a 30 year U.S. Treasury bond in April 1979 was 9.08%.

Do bonds have consistently better returns than stocks over the long run? Not according to Jeremy Siegel who researched owning stocks versus bonds for various periods in his book “Stocks for the Long Run.” Mike Piper, who has written several introductory books on accounting and taxes, reviews some of the details on his Oblivious Investor blog.

As convincing as Siegel’s case for stocks may be, should a person put all their savings in stocks? No. Only a fool believes that the next 30 years will be like the last 30 years. For most of us, the safest answer is to diversify among a range of investments.

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