In Jeremy Siegel’s “Stocks for the Long Run,” he has two main objectives: to record and assess the factors that influence stocks and fixed-income assets (both the risks and returns of each) and based on the information suggest tactics that would maximize long-term returns. Based on all of the data and analyses throughout the book, Siegel declares that the best way to capitalize on the stock market in the long run is through a diverse portfolio of stocks. He asserts that stocks are safer than bonds when purchasing power is considered and that the consistent results over 20-year periods support this theory.
Because stocks have such a high short-term risk, most investors shy away from them, ignoring their steady long-term gain. ... However, by using over 200 years of data, Siegel clearly outlines in the first chapter the constant growth of stocks, showing that even the Crash of 1929 is only a tiny dip in the overall climb of stocks. ...
In the short run, stocks are undoubtedly very risky. However, over the long run bonds are more risky than stocks because of inflation and its uncertainty. History has shown that over 30 years, a diversified portfolio of common stocks is more certain to have greater purchasing power than a 30-year bond. ... The tax gains that come from capital gains tax rates and deferring realizing those gains are more significant for stocks than fixed-income assets. Nevertheless, it is beneficial to keep low-dividend stocks in taxable accounts as well, bettering the chances of gaining even more purchasing power in the long run.
Dividends and earnings of firms are the two basic sources of stock valuation, which is the potential cash flow an investor can gain from the stocks. ... Nevertheless, while stocks may falter from their returns in the past, it still seems that they will outperform fixed-income assets over the long run.
Historical data seem to imply that small stocks outperform large stocks and value stocks outperform growth stocks. However, these returns from the past may not represent their future returns at all, so Siegel says it is best to diversify among all classes of stock, especially since not a single stock can be guaranteed success.
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