Jeremy Siegel is the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania. He's also the author of Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies.

Siegel recently chatted with David and Tom Gardner on The Motley Fool Radio Show and shared his thoughts on the housing market, the stock market, and more. This is the second of three parts.

TMF:  Let's take the Motley Fool listener out there with $25,000 to invest for three years or more. What would you suggest they do?

Siegel: Well, I still think stocks. I think bonds are a great risk even though we've seen interest rates jump over a percent in the treasury market -- I still think they are low. And I still think there is going to be pressure on the credit markets. I still think that stocks are the place to be over the next three years. Maybe we are talking about returns of 7%, 8%, 9% a year. Obviously this could vary a lot.

Looking ahead on long-term interest rates: You are getting 4% in governments, 5% on 30-years, and you've got all sorts of risks. Look at what happened to bond funds in as little as two or three weeks. They plummeted as a result of the rise in interest rates. So they are not risk free, and I think stocks are still better, and I think they'll even beat real estate over the next two or three years.

We just have to lower our expectations. The double-digit returns that were so common in the '90s have become the high single-digit returns to hope for in the new millennium.

TMF:  Professor Siegel, in June you wrote that the extreme bullishness in the U.S. stock market means that there are few buyers left. Explain.

Siegel: What I am saying is that the sentiment indicators out there are about as bullish as we have seen. History shows that while that doesn't mean an imminent turnaround in the market, it does mean the market is closer to a short or intermediate-term peak than it is a bottom. That's why I made the statement that I think most of this year's gains are probably behind us.

TMF:  Let's briefly talk about your work at Wharton. How long have you been at the business school?

Siegel: I have been here since 1976, so that gives me 27 years. A long time at Wharton.

TMF:  Earned at least a few sabbaticals there.

Siegel: Yes, I have been gathering them up. I actually haven't taken them recently. (Laughs.) So maybe I will save them until the end and have a nice vacation.

Tomorrow, Professor Siegel talks about stock market misconceptions.