From 1926 to today, most studies show that the long-run rate of return for U.S. stocks has been about 10 percent. This is far above the long-run rate o return for bonds, CDs, money market accounts and other fixed assets. Why is this so?
2007-10-16 18:52:19 · 3 answers · asked by xia t 1 in Business & Finance ➔ Investing
The stock market is riskier than the other markets that you mention. Since investors are risk averse, they demand a greater average return for taking on that extra risk.
Interestingly, the extra return comes when Democrats are in office. When a Republican is president, the return on the market is usually less than it is in bonds.
2007-10-16 19:16:23 · answer #1 · answered by Ranto 7 · 2⤊ 0⤋
Its because of the equity risk premium. Stocks have a higher risk and so they have a higher expected return.
The 10 percent figure is a nominal rate. The real return is closer to 7 percent.
2007-10-17 03:40:53 · answer #2 · answered by jeff410 7 · 1⤊ 0⤋
because bonds, cds, fixed assets, have zero risk. stocks on the other hand, can make you money, or can sink and loose you some
2007-10-17 02:00:54 · answer #3 · answered by Anonymous · 0⤊ 1⤋