… cutting yourself off from their marvelous potential for rising income and growing capital, which are exactly the weapons you’ll need to fight decades of increasing living costs during your retirement, and to create a legacy for your children.

For, as you’ll see, the great long-term financial risk isn’t losing your money. It’s outliving your money.

These two chapters complete this book’s central investment thesis. … Simply stated, this thesis is as follows:

(1) The real long-term total return of equities is so much greater than that of bonds that holding bonds is irrational for the true wealth seeker. (“An Owner, Not A Loaner”)

(2) While stocks are much more volatile than bonds — sometimes horrifically so — the passage of time leaches the risk out of stocks. Moreover, volatility isn’t risk, and volatility passes away, while the premium returns of stocks remain. (“What the Real Risk Isn’t”)

(3) The great long-term financial risk isn’t loss of principal, but erosion of purchasing power. Stocks increase in value, and raise their dividends, at a much greater rate than inflation saps our purchasing power. The great long-term risk of stocks is, therefore, not owning them. (“What The Real Risk Is”)

…

Before we begin our explanation of what long-term risk is and isn’t, let’s make sure we’ve got a shared understanding of what “long term” really means. For the purposes of this book, it’s five years and up.

…

So the more important your under-five-year goal is to you, the less you want to put the achievement of that goal at risk. If you need to be absolutely sure of having a big down payment on a house three years from now, or if your daughter’s starting college in a couple of years — if you have any goals that requires a very large, specific chunk of capital within five years — I strongly recommend taking a pass on equities.

Will stocks produce a positive return over any five-year period? Probably. Will stocks provide a better return than bonds or CDs over those five years? Still probably, but less so. No matter: when your goal is very time-specific and very dollar-specific — “probably” just isn’t good enough.

…

And you’ve got time — perhaps much more than you think. Your heirs have way more time than that.

So don’t go thinking that, if you’re 59 and planning to retire at 63, you’re within the five-years-no-stocks window. That rule only applies when you’ll need your principal within five years. A retiree won’t. The thing you’ll need when you’re 63 is twenty-five to thirty years of an income stream that’s rising faster than is your cost of living. That, as we’ll see, means stocks. And it almost certainly does not mean bonds.

Think — at an absolute minimum — in terms of the rest of your (and your spouse’s) life.”

— Nick Murray from “Simple Wealth Inevitable Wealth” p. 57