Stock

Market briefs – Merrill Lynch

The long-term case for stocks,

with Jeremy Siegel

With:

Chris Hyzy

Chief Investment Officer,

Merrill and Bank of America Private Bank

And Jeremy Siegel

Senior Investment Strategy Advisor, WisdomTree

Emeritus Professor Finance, The Wharton School

Please see important information at the end of this program. Recorded on 11/30/2021.

The content within is based on historical data and not meant to project future results.

Historical results are based on long-term investment strategies and may not be appropriate for a shorter-term investment strategy.

Past performance does not guarantee future results.

Chris Hyzy

Chief Investment Officer

Merrill and Bank of America Private Bank

Hello, I’m Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.

The markets have been experiencing heightened volatility since the start of 2022, and we understand that can be unsettling for many investors. It can even be tempting to pull out of the markets altogether. That’s why it’s so important to remember that volatility is a normal part of investing and pull backs can often create opportunities to add to your long-term investments.

In addition, history shows us that the markets ultimately have rebounded following sharp selloffs. The key is staying disciplined to your long-term strategy and not let short-term swings distract you from focusing on your goals.

On this note, I had an opportunity recently to speak with one of the country’s leading experts on long-term investing, Professor Jeremy Siegel.

[GRAPHIC]

An image of the cover of Stocks for the Long Run, by Jeremey J. Siegel

His best-selling book Stocks for the Long Run – backed by his decades of research into the markets — shows how staying invested has historically been the optimal strategy during periods of volatility; and that over time, the equity markets have shown steady upward gains, even after factoring in inflation.

We think this focus on the “big picture” is essential to keep in mind, no matter what the markets are doing on any given day, week or month. As we often note in the Chief Investment Office, time in the markets over the long-term is historically a better strategy than timing the markets.

I hope you find my conversation with Professor Jeremy Siegel very helpful.

And if you’re working with an advisor, please reach out to them to discuss what these insights could mean for you and your own situation.

Chris Hyzy:

Professor Siegel let’s talk long-term investing. We get so caught up in the week to week, sometimes day to day activity in the markets. You have been long known as one of the greatest researchers of long-term investing in general. What are the main drivers of the equity markets over time? And what are your thoughts on that?

Jeremy Siegel:

Well, you’re right, Chris, that’s been my bread and butter, long-term investing.

Jeremy J. Siegel

Senior Investment Strategy Advisor, WisdomTree

Emeritus Professor of Finance, The Wharton School

When I wrote the book Stocks for the Long Run, I went back further than any other researcher, back to the beginning of the 19th century. And it just was astounding how steady the long-run return on stocks was.

And I remember often being asked, “Jeremy, that’s a great book. It’s, you know, 650 pages. Can you summarize it in one sentence?” And I would say the following: that stocks are the most volatile asset class in the short run, but the most stable asset class in the long run.

[GRAPHIC]

Long-term returns for stocks have far outpaced other asset classes

Jan 1802 – Dec 2021

An animated line chart that shows the year-by-year accumulation of wealth for a hypothetical investor who invested one U.S. Dollar in 1) stocks, 2) bonds, 3) U.S. Treasury bills and 4) gold, beginning in January 1802 and ending in December 2021.

· Stocks line shows a real return of 6.9 % with $2,334,990 in accumulated wealth at the end of December 2021

· Bonds line show a real return of 3.6 % with $2,163 in accumulated wealth at the end of December 2021

· Treasury bills line show a real return of 2.5 % with $245 in accumulated wealth at the end of December 2021

· Gold line shows a real return of 0.6 % with $4.06 in accumulated wealth at the end of December 2021

Source: Jeremy Siegel, Stocks for the Long Run

Past performance is no guarantee of future results

And if you take a look at the graphs that are in that book, you see that. A lot of wiggles in that line, but a steady upward movement that surpasses all the other assets classes, gold, bonds, bills and everything else that I traced for over two centuries of the data.

Chris Hyzy:

It’s the essence, if you will, of compounded returns.

Jeremy Siegel:

Absolutely.

Chris Hyzy:

That’s the power of compounded returns.

Jeremy Siegel:

My compound long-run return for 220 years after inflation, and that’s really key here, 6.9% per year after inflation, capital gains plus dividends, after inflation. I mean, that is a number, as you mentioned, the power of compound interest that doubles almost every 10 years, after inflation. And that is really an astounding return.

Chris Hyzy:

There’s a lot of talk today, in the last year, maybe the last two years, that 60 / 40 – 60% equities, 40% fixed income – is so-called, the allocation is dead. What are your thoughts there?

Jeremy Siegel:

We’ve looked into that and we had, before even the pandemic, thought that 60 / 40 was dead. That it was not going to fulfill the income and withdrawal needs of retirees and other individuals.

[LOWER 3rd]

Speak with your advisor about what asset allocation is

right for your situation and financial goals.

Obviously you need to talk with your advisor about your own situation. It’s going to be different for every person, but you’re going to have to go more towards equities. [It] does mean that you’re going to have some short-term extra volatility, but the income differences right now, are so great that’s going to more than make up for the volatility.

Chris Hyzy:

When you look at the business cycle over the next seven to 10 years, is it still dominated by innovation; still dominated by consumer spending?

Jeremy Siegel:

Absolutely. I mean, there’s no question that the stock market falls almost every single time, if there’s going to be a recession. But in the recovery, it more than makes up the decline and continues upward for the expansion.

[LOWER 3rd]

Since 1860, U.S. recessions have been getting farther apart,

while growth cycles have been expanding.

And one thing – the National Bureau of Economic Research has given us all the way from 1860 onward, all the recessions, they are getting farther and farther apart. So, we’re actually the lengthening out those expansive, those innovative cycles that can, you know, totally offset the cyclical cycle.

Chris Hyzy:

What has changed with the investor that you have seen over the last few years relative to what the investor was like decades ago? And what’s your one advice for them, when things look as terrible as they can look.

[GRAPHIC]

Long-term returns for stocks have far outpaced other asset classes

Jan 1802 – Dec 2021

Line chart that shows the year-by-year accumulation of wealth for a hypothetical investor who invested one U.S. Dollar in 1) stocks, 2) bonds, 3) U.S. Treasury bills and 4) gold, beginning in January 1802 and ending in December 2021.

· Stocks line shows a real return of 6.9 % with $2,334,990 in accumulated wealth at the end of December 2021

· Bonds line show a real return of 3.6 % with $2,163 in accumulated wealth at the end of December 2021

· Treasury bills line show a real return of 2.5 % with $245 in accumulated wealth at the end of December 2021

· Gold line shows a real return of 0.6 % with $4.06 in accumulated wealth at the end of December 2021

Source: Jeremy Siegel, Stocks for the Long Run

Past performance is no guarantee of future results

Jeremy Siegel:

I sometimes tell them to look at my long-term chart that I have in my book; calm you down saying, “you know, these are, those wiggles don’t look so bad when you look at the long run.” But we have a change. The young people, and it’s really encouraging, they’re really interested in what stocks are going to do well.

Now listen, I’m not [in] approval of many of these so-called meme stocks. I don’t think they’re going to give good returns in the long run. But they’re looking at the technology that is going to transform our economy and they’re trying to figure out, “Who should I fund that can change the world in the most way.” And so, in a way I’m just very, very encouraged.

For the older people, I think if they just take a look at history, they’ll realize that, stay in there. There’s going to be wobbles to be sure, but by far your best performance will be to stick with the market.

Chris Hyzy:

What’s most important over the long haul, when you just step back and think about investing and the equity markets in general?

Jeremy Siegel:

Well, in general, you know, don’t hitch to just one or two wagons, because that’s always going to change. Don’t panic when there’s all these situations that cause so much anxiety.

It’s to stay the course. Diversify; be broad based. Don’t put all your eggs in one basket or one set of baskets. I think you’ve got to be broad based. And that’s what you should keep in mind.

Chris Hyzy:

Professor Siegel, what a great place to end. Thanks so much again for joining us.

Jeremy Siegel:

Thank you for having me, Chris.

IMPORTANT DISCLOSURES

All data is as of 11/30/2021 and subject to change.

Jeremy Siegel, WisdomTree and The Wharton School are not affiliated with Bank of America Corporation.

Any opinions expressed herein are given in good faith, are subject to change without notice, and are as of the date of this program.

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).

Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S” or “Merrill”) makes available certain investment products sponsored, managed, distributed, or provided by companies that are affiliates of Bank of America Corporation (“BofA Corp.”). MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp. Merrill Lynch Life Agency Inc. (“MLLA”) is a licensed insurance agency and a wholly owned subsidiary of BofA Corp.

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“Bank of America” is a marketing name for the Retirement Services business of Bank of America Corporation (“BofA Corp.”).

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