What are the historical rates of return for cash, bonds and stocks? How should these returns affect how my assets are allocated?
To create a successful long-term investment plan for a lump sum of money, it s important to strike a balance between the three major financial asset classes. 1. Cash and cash equivalents provide a stable investment value and current investment income. This group includes money market funds, T-bills, and bank CDs. 2. Bonds are interest-bearing obligations issued by corporations, the federal government and its agencies, and state and local governments. The yields offered by these securities are generally higher than those of cash reserves, but their value fluctuates with interest rates and bond market conditions. 3. Common stocks represent ownership rights in a corporation. They offer potential for capital growth and often pay dividends. Stock market risk can be substantial, however, as any one who invested in 2000 or later can tell you. Your investment returns depend to a great extent on how you allocate your money among these three asset classes. Common stocks have historically deliver
