ONE DOES ENVY THE YOUNGSTERS JUST STARTING THEIR 401k's NOW:

Head for the Hills? No Way, He Says (JEFF SOMMER, 7/19/10, NY Times)

Now a professor of finance at the Wharton School of the University of Pennsylvania, Mr. Siegel, 64, knows that not everyone shares this passion — but says he believes that nearly everyone should invest in the stock market and keep their money there as long as they can. [...]

As for the stock market, Professor Siegel said, “there is every reason to believe that mean reversion will continue” — that is, that despite sometimes excruciating declines, the market over the long run will produce average real returns of more than 6 percent annually. “The shocks of the recent past shouldn’t alter investors’ belief in the future,” he said.

The spine of “Stocks for the Long Run” was a study of the United States market going back to 1802, using data from several sources. Over that period, he found that the stock market outperformed every other asset class. In stretches as long as 20 years — including the last 10 and 20 years, according to data provided to Sunday Business by Morningstar — long-term government bonds have sometimes outperformed stocks. But as holding periods lengthened, he found, the stock market has almost always pulled ahead. Other studies have found similar results in other countries.

Emphasizing dividend-paying value stocks and investing globally will bolster your chances, he said.

What’s more, when stocks are cheaper than average, as measured by the price-to-earnings ratio, positive returns became more probable in subsequent years. That is very encouraging for the current market, in which earnings have been rising despite widespread skepticism, keeping the P/E of the Standard & Poor’s 500-stock index at a modest level. Based on consensus estimates, it stands at 13. That compares with an annual average of 15.2 since 1945, he said.

If post-World War II patterns hold for the future, he calculated last week, prospects for stock investments are excellent: there would be a 96.6 percent probability of a positive return for the next 5 years, going up to 100 percent for 10- and 20-year periods. Average real returns would be stellar — about 11 percent annually in holding periods from 1 to 20 years.