Gary Karz, CFA (email)
Host of InvestorHome
Principal, Proficient Investment Management, LLC

The argument for buying stocks is actually quite simple. In the long run, stocks have historically been the best performing asset class among traditional investments. (See Historical Returns.) The figures most commonly referred to are from Ibbotson Associates which maintains statistics on the major investment classes going back to 1926 and publishes Stocks, Bond, Bills, and Inflation annually. Wharton professor Jeremy J. Siegel went even further having researched investments all the way back to 1802 (documented in his book Stocks for the Long Run). The bottom line is that historically US stocks have returned roughly 10% a year (7% over inflation). However, the returns do not come without risk: the 10% is only an average and over any given period of time returns can fluctuate significantly.

There are many web sites that eloquently address the positives of investing in stocks, but the best sites also clearly and effectively spell out the inherent risks and considerations to evaluate. A good places to start is The Vanguard Group's The Truth About Risks and Time vs. Risk from SmartMoney.

An ongoing debate is whether the risk of owning stocks decreases over time. The answer is very little according to Philippe Jorion in The Long-Term Risks of Global Stock Markets Financial Management (2003). However, he finds that diversification among countries is effective. Professor Zvi Bodie also questioned the conclusion that stocks are safer in the long run in On The Risks of Stocks in the Long Run and there were others before that as well (like On Persistence of Risk).

"Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."
Warren Buffett

"Stocks are a safe bet, but only if you stay invested long enough to ride out the corrections."
Peter Lynch, Worth December/January 1997

"If you adhere to the dogma that stocks must beat bonds in the long-enough run, there is no P/E level that the market averages out to at which you will take in sail. A Ponzi bubble is ever possible, and given past psychologies of boom and bust, ever-higher P/E ratios become a self-fulfilling prophecy."
Paul A. Samuelson, "The Long-Term Case for Equities," The Journal of Portfolio Management, Fall 1994.