History 101: Past Is Imperfect Guide
Past performance is a rotten guide to future results. But that hasn't deterred investors.</br></br>Folks love to pore over stock-market data, hoping to divine the future. But unfortunately, while the past gives credence to certain investment principles, it doesn't offer much help to those looking to beat the market.</br></br>History Lessons. We have U.S. stock data going back two centuries. What can we learn? Three lessons stand out.</br></br>First, it pays to take risk. "The longer we go out, the more pronounced the risk-reward trade-off becomes," says Scott Lummer, chief investment officer of mPower, a San Francisco online investment adviser. "Bonds beat cash, stocks beat bonds, small stocks beat large stocks."</br></br>Second, unlike bonds or Treasury bills, stocks have proven to be a wonderful long-run defense against rising consumer prices, outpacing inflation by an average seven percentage points a year.