Is it better to invest in stocks or bonds? Well, money you won't need for five or more years will likely grow fastest in stocks.
According to Ibbotson & Associates, from 1926 to 2000 (notice that includes the Great Depression years), U.S. Treasury bills returned an average of 3.8% per year, compared with 5.3% for long-term corporate bonds and 11.0% for stocks. If you had invested $5,000 in T-bills 50 years ago, it would now be worth $33,272. Growing at 11% in stocks, it would be worth $922,824. (From 1926 to 2000, inflation grew at an average rate of 3.1% annually.)
Of course, note that returns are far from guaranteed in the stock market, while bond interest rates are guaranteed. The more risk you take with investments, the higher the returns can be.
One big advocate of stocks for the long-term investor is Wharton Business School investor Jeremy Siegel. We interviewed him last year on our Motley Fool Radio Show -- read a transcript of his thoughts on the market.
