Cast your mind back to the mid 2000s. The stock market had been in full flight in a bull market since early 2003. Interest rates were low. Stock prices were rising. Academics and market commentators produced many statistics to show that, in the long term, stock markets always rose and produced better returns than other asset classes such as property, bonds or cash. There was a general belief that the growth of China would continue strongly for a long time, underwriting the resources boom. It seemed everyone was buying stocks.
Around this time, Trevor and Ruth came into a large inheritance and decided to retire and live off the earnings from the bequest. Their problem was how to invest it. Trevor had always taken an interest in investments and the stock market in particular. However, he did not feel that he knew enough to manage such a large sum, so Trevor and Ruth went back to school.
Shunning the get-rich-quick seminars, they began reading on their own and then undertook some study with Kaplan, the foremost education company for the investment industry. Meanwhile, they parked the inheritance in a high-yielding internet bank deposit account at call.
It took them two years of full-time study, but at the end of it Trevor and Ruth felt they were ready to start. One of the books they had read was Jeremy Siegel’s Stocks for the Long Run, which seemed to be saying ...