Tags: Siegel | stocks | rule | bonds

Wharton’s Jeremy Siegel: Stocks Rule Over Bonds

By Dan Weil   |   Monday, 14 May 2012 07:49 AM

Stock prices may have dropped in recent days, and individual investors may be fleeing the market. But equities remain a superior investment over bonds, says Jeremy Siegel, economics professor at the University of Pennsylvania's Wharton School.

The Standard & Poor’s 500 Index has slid almost 4 percent since May 1. And in the week ended May 9, investors withdrew a net $6.5 billion from stock mutual funds, according to Lipper.

But Siegel, a professor at the University of Pennsylvania, has said recently that the Dow Jones Industrial Average may hit 17,000 next year, a 33 percent increase from recent levels.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

He doesn’t understand why investors are foregoing stocks for bonds. Even a stock market that just stays steady offers investors a better return than bonds, thanks to dividends, Siegel said at a conference last week, CNBC reports.

He has conducted research showing that historically, reinvested dividends account for 97 percent of the market’s returns.

"How can people voluntarily give their money to the government and [say] give me no yield for 10 years and less money than I have now in terms of purchasing power?" Siegel says.

Treasurys recently yielded 1.8 percent, less than the 2.7 percent gain in consumer prices during the year through March.

Money management titan Leon Cooperman, CEO of Omega Advisors, agrees with Siegel.

Many blue-chip stocks have a higher yield than Treasurys. “And they [stocks] have a growth component,” he notes in an interview with Steve Forbes, chairman of Forbes Media.

Editor's Note:
How You Lost $85,000 During the Last Decade. See the Numbers.

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