Money Essentials

Pros and cons of different investments

The 1990s enjoyed the biggest bull market in U.S. history. During the decade the Dow more than quadrupled.

While stocks, as represented by the S&P 500, have not always performed so extraordinarily -- compounding at a dazzling 15.3% annual rate for that time period -- they have usually been the best performing asset class over time.

Since 1926, stocks have returned nearly 10% -- and that included the most recent horrendous bear market. Over the same period, government bonds returned 5.4%. (This according to the folks at Ibbotson Associates in Chicago.) In other words, if you're investing for the long-term, stocks are the place to be.

But if you're looking to invest money you may need in a year or two, the stock market can be downright dangerous. Look no further than the Dow's 777-point drop on Sept. 29, 2008. Or the 554-point drop on Oct. 27, 1997, and the 508-point drop on Oct. 19, 1987 -- a harrowing 22.6% loss -- to see what a difference a day can make.

Then there are those bloody bear markets, like 1973-74, when the Dow fell 45%. In 2008, the total stock market lost 37%.

To cite a severe example, if you had bought the stocks in the Dow Jones industrial average at their peak in early 1966, you wouldn't have made any significant profit until mid-1983 -- more than 17 years later. Even that was better than if you'd bought in the pre-crash peak of 1929. After that, it took until 1954 for the market to regain all it lost in the Depression. As for the market woes of the early 2000s, it would take more than five years using an historical average rate of return, for the Dow to return to its glory-day levels from its October 2002 low.

Bonds, of course, are another story. While they won't give your portfolio the kind of kick that stocks will, nor are they likely to give it the same kind of thrashing. In 2009, the worst single year for bonds in recent history, intermediate-term government bonds (that is, Treasury securities with maturities of 7 to 10 years) fell 9%.

more lessons
More Money Essentials
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
RadioShack: 94 years of hits and misses The electronic giant's road to ruin is littered with 8-tracks, CD payers, pagers and many, many calculators. More
The best TV deals for the Super Bowl Want a new TV for the Super Bowl? Some great deals make now the time to buy. More
Top-paying jobs Orthopedic surgeons take home a median $410,000 in salary and bonus annually. What other great careers from CNNMoney and's list of Best Jobs in America offer hefty paychecks? More

Updated 7/10/2012 with updated content, link - aross

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2015 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2015. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2015 and/or its affiliates.