Finance: Stocks Vs Treasury Bonds :: essays research papers

Historically speaking, stocks have been found to be no more risky than Treasury bonds. Over the past twenty historic period vast research has been done on this subject. Jeremy Siegel of the University of Pennsylvanias Wharton indoctrinate stated that, The safest gigantic-term investment for the preservation of purchasing power has clearly been stocks, not bonds. Since the mid nineteen twenties, company stocks have average one-year returns close to 11%, while on the other hand, Treasury Bonds plainly return with a little over 5%.Currently stocks argon on the rise. Since 1982 the reason for this is the declining risk premium. The return, or risk premium, that is required is such(prenominal)(prenominal) little. This is for several reasons. Investors have realized not to be so solemn of the great unpredictability of stocks. Instead of dropping stocks in the short run, investors argon learning to hold out for the long run to see wide benefits. Secondly, Americans atomic number 18 now keeping stocks in accounts that require long-term holding, such as retirement accounts. Also, businesses ar becoming overmuch more economic and the chance of undergoing devastating turn-arounds in a recession atomic number 18 much less. The tax environment is more generous, foreign threats have ceased dramatically, and the government attention has vastly improved.The bottom line is that the risk of investing stocks is much less than it ever has been before. The level of the risk premium is heading towards zero, while presently holding at 3%. That 3% is much better than the historic average of 7%.James K. Glassman and Kevin A Hassett, authors of the book, Dow 36,000, claim that the prediction of the Dow ambit 36,000 is not out of the realm of possibilities. If the earnings grow in the long term at the same rate as the GDP and treasury bonds are below 6%, then it is very possible for the Dow to hit a level of 36,000. One critic of Dow 36,000, Burton G. Malkiel, stated that the rise in stocks that has been occurring is the beginning to an adjustment that will only be complete when stocks and bonds are belld to offer equivalent returns, and that implies a level of 36,000 for the Dow today with a price earnings multiple of 100.So the question remains at whether the authors of Dow 36,000 are correct or incorrect about the arguments and predictions that they devise in their book. They are correct in what they predict in their book, but they need to make sure to not lead some not-so-experienced investors down the wrong pass of deception.