Long-Horizon Investing, Part 2: Stocks are Always Risky

Nathan DutzmannAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

This is part two of a five-part series that develops an analytical framework for long-term, retirement-oriented investing. You can read part 1 here. The author would like to thank Joe Tomlinson and Michael Finke for their helpful comments on this article series.


As I noted in Part 1 of this series, common aphorisms and assumed truths about stock returns often imply the disappearance of risk over long horizons. (E.g., “you’ll have time for stocks to recover” or “you’re betting on the economy, and that always wins in the long run.”)

But among those who have researched the concept in depth, the existence of long-run stock risk is not particularly controversial. For example, Jeremy Siegel of Stocks for the Long Run fame had this to say, in the chapter of that book in which he most aggressively made the case that stock risk is unexpectedly low and that stocks are better than bonds over long timeframes:

Note that I am not claiming that the risk on a portfolio of stocks falls as we extend the time period. The standard deviation of total stock returns rises with time, but it does so at a diminishing rate.1

In perhaps the most famous treatise favoring long-run stock investing, the author did not claim stock risk disappears at long horizons, nor even that it diminishes, but only that it grows at an unexpectedly slow rate! No wonder then that in the famous debate between Siegel and Zvi Bodie, the actual disagreement is a bit hard to spot.