ABSTRACT
The following graph shows annual returns from 1928 to the present in stocks, Treasury bills (short-term U.S. Government bonds), and Treasury bonds (long-term U.S. Government bonds). We have reproduced this data to provide a historical context for understanding the role of stocks and bonds in your portfolio. If you look from year to year you will see much greater volatility in the price of stocks than in the price of bonds. However, the arithmetic average growth of stocks from 1928 to 2002 has been 11.6%, whereas the arithmetic growth in bonds has been less than half that amount. These historical data underscore the strategy that stocks provide growth in your portfolio but also entail more risk and volatility. We use bonds to steady a given portfolio with the trade-off that we typically do not expect high returns from the bond portion of the portfolio.
