Expert Still Backs Investing In Stock Market

Jeremy Siegel, professor of finance at the Wharton School at the University of Pennsylvania and author of Stocks for the Long Run, says he still thinks the best investment in the long run is the stock market. He says he is "virtually sure" it's not going to be a long wait for a good return on stocks.

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ROBERT SIEGEL, host:

We're going to continue Rethinking Retirement now with Jeremy Siegel, who is professor of finance at the Wharton School at the University of Pennsylvania and author of the book, "Stocks for the Long Run."

And Jeremy Siegel, is it fair to say your thesis is that the best investment for the long run for people trying to retire well and devoid, say, Mr. Brindley's situation right now, would be to invest in the stock market?

Professor JEREMY SIEGEL (Finance, Wharton School, University of Pennsylvania; Author, "Stocks for the Long Run"): Yes, I would still maintain that, even though we all know it's been a very painful 10 years. But looking forward, for everything that I think, it's certainly going to be much better for investors.

SIEGEL: Of course, the question that's raised by the notion "Stocks for the Long Run" is how long is long?

Prof. SIEGEL: Yeah.

(Soundbite of laughter)

SIEGEL: If we could invest for 100 years, I'm with you. If you could invest for 20 years, you could end up having to cash out at a very unfortunate time like the present one.

Prof. SIEGEL: Right. And some people said, oh, what's good about your title, Jeremy, is that you can never be wrong. If you just wait long enough, you'll probably be bailed out. But I don't think, in fact, I'm virtually sure that it's not going to be a long wait. And the reason is we're no longer at high points in the market. In March, we were down more than 50 percent. And I looked all the way back last hundred years. Once you're down 50 percent, your prospects are very good.

SIEGEL: You're saying that the market dropped by so much over the past year that you're saying, surely, this must have been the bottom back in March.

Prof. SIEGEL: Even in December of 1930, where you were 50 percent down from that all-time high in 1929, your five-year return was more than seven percent after inflation. The world looks different once you're down as much as we have been down.

SIEGEL: But all of those historic examples somehow at the moment pale beside 2009. I mean, if one had just retired, say, at the end of last year, your accounts in the stock market looked pretty paltry, if you were going to try to live off that dividend income.

Prof. SIEGEL: Absolutely. And, you know, I heard the report about Mr. Brindley, I sympathize with his situation. I think one of the important things he notes is how to get income clearly in CDs or government securities. One thing that is really important is that the dividend yield on the stock market is now fairly attractive. In fact, back in March, it actually exceeded the interest rate on long-term government bonds for the first time in 50 years.

SIEGEL: I wonder, your advocacy of buying stocks obviously would offend a very, very receptive audience throughout years when the stock market was roaring ahead and doing very well. Some people now foresee a great caution in investment and in business decisions up and down the line because of what's just happened.

And if you're looking forward and seeing a treasury bill that maybe has a low yield, but we don't think the federal government is going to implode or renege on its debts. And on the other hand, the stock which could be good, but just about any company nowadays looks like it's capable of collapsing, or at least over the past year, it was. Do you suspect people are going to be more and more and more drawn to the conservative decision of the federal paper?

Prof. SIEGEL: Well, certainly they were. In December, January, February, we had horrible headlines coming out of major financial institutes and suddenly breaking down. Interestingly, we've gone now for a period of three months in the absence of any of that news. And I actually don't think there is another shoe to drop or another scare headline out there. And the history has said that is a time to buy.

SIEGEL: Professor Jeremy Siegel of the Wharton School, thank you very much for talking with us.

Prof. SIEGEL: Thanks for having me.

SIEGEL: And if you'd like to estimate how much you should be saving for retirement, you can find links to retirement calculators at our Web site; that, of course, is npr.org.

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