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Summer School – Equities

August 26, 2026

Why We Own Stocks

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By Kevin Curley II, CFP®, CEPA® | Senior Wealth Advisor, Clearfront Advisory

Introduction

There is an asset class that, over the long run, has done more to build and preserve family wealth than any other. It has outpaced inflation, outperformed bonds, real estate, gold, and nearly every alternative you can name — across decades, across geographies, across economic regimes.

It also has a well-documented flaw. Historically, stocks lose an average of 31.7% during a bear market, which has happened on average every 5.1 years from 1945 to 2024. The declines are sudden, they feel permanent in the moment, and they have ended the financial plans of investors who were not prepared for them.

That asset class is equities. Stocks. Ownership in businesses.

At Clearfront, our mission is to help you build wealth beyond work. Our integrated planning solution — ClearVision™, ClearCapital™, ClearCut™, ClearShield™, ClearScholar™, ClearLegacy™, and ClearExit™ — is designed to help you get there. This series is a good starting point for anyone new to these concepts, and a useful refresher for anyone who wants to revisit the fundamentals of how these tools work and why we use them.

This post is about what stocks are, why they work, what the data actually shows, and how we think about them inside ClearCapital™. Not a pitch. Not a guarantee. Just an honest look at the most powerful long-term wealth-building tool available to individual investors — and the price you pay to use it.

What Is a Stock?

A share of stock is a fractional ownership interest in a business. When you buy a share of a company, you are a part-owner of that business. You are entitled to a proportional claim on its earnings, its assets, and its future growth.

That sounds simple. The implications are not.

Businesses, in aggregate, do something remarkable over time: they grow. They hire people, develop products, enter new markets, return capital to shareholders through dividends and buybacks, and compound their earnings year after year. As their earnings grow, the value of owning them grows. That growth flows to shareholders.

This is fundamentally different from lending money — which is what you do when you buy a bond. A bondholder gets paid back with interest and that is the end of the transaction. A stockholder participates in everything that happens after the purchase. The upside is theoretically unlimited. The risk is real.

How Stocks Are Priced

Stock prices are driven by many factors in the short term — sentiment, news flow, interest rates, momentum. But over time, prices follow earnings. The most widely used measure of valuation is the price-to-earnings ratio, or P/E — the price of the stock divided by the earnings per share it produces. A P/E of 20 means investors are paying $20 for every $1 of current earnings, with the expectation that those earnings will grow.

Other valuation metrics matter too — price-to-book, price-to-sales, dividend yield, cyclically adjusted earnings (the CAPE or Shiller P/E). But the core insight holds across all of them: in the long run, you are buying a stream of future earnings, and the price you pay relative to those earnings is the primary driver of your long-term return.

In the short run, stocks are priced by what investors feel. In the long run, they are priced by what businesses earn.

What the Data Shows — Jeremy Siegel and the Long Run

Finance professor Jeremy Siegel of the Wharton School has spent his career studying long-run asset returns. His landmark work, Stocks for the Long Run, now in its sixth edition, documents equity returns going back to 1802. His core finding: U.S. stocks have returned approximately 6.5 to 7 percent per year in real terms — meaning after inflation — over that entire period. Bonds have returned roughly 3.5 percent. Gold and cash have done worse.

That gap compounds dramatically. A dollar invested in stocks in 1802, with dividends reinvested, grew to more than $1 million in real purchasing power by the early 2000s. A dollar in bonds grew to roughly $1,000. The difference is not a rounding error — it is the difference between financial independence and financial adequacy.

Siegel’s work also documents the consistency of that return over long holding periods. When you look at rolling 20-year returns on a diversified U.S. equity portfolio, the worst periods in history — including the Great Depression, World War II, the stagflation of the 1970s, and the dot-com bust — still produced positive real returns over 20-year windows. Not a guarantee of future results. But a historically consistent pattern that spans war, depression, inflation, and financial crisis.

The data suggests that time in the market, not timing the market, is the primary driver of equity outcomes. The investor who held through every crisis in the 20th century did dramatically better than the investor who tried to sidestep them.

Look at the distribution of annual stock market returns year by year. In any given year, the market goes up about as often as it goes down — the one-year outcome is close to a coin flip. Widen the window to five years and the odds of a positive real return improve substantially. At ten years, they improve further. At twenty years, the historical record shows positive real returns in nearly every rolling period ever measured. The volatility does not go away. It becomes less relevant.

The Behavioral Dimension — Nick Murray

Knowing the data is not the same as being able to act on it.

Advisor and author Nick Murray has spent decades writing about the behavioral side of investing — why investors consistently underperform the very funds they own, and what separates successful long-term investors from unsuccessful ones. His central argument: the primary determinant of investment outcomes is not asset allocation or security selection. It is investor behavior during periods of market stress.

The investor who sells during a 40 percent decline locks in a permanent loss. The investor who holds — or better yet, continues to invest — captures the recovery. Murray’s work documents how reliably markets recover, and how reliably panicking investors miss those recoveries by exiting at the bottom and re-entering after the damage is done.

This is why we spend as much time on investor psychology as we do on portfolio construction. A technically optimal portfolio that an investor abandons at the wrong moment is worse than a simpler portfolio they can hold through a crisis.

The Honest Tradeoff

None of this comes free.

Roughly twice per decade, equity markets experience severe drawdowns — declines of 30 to 50 percent or more from peak to trough. These are not rare statistical anomalies. They are a regular feature of equity ownership. The 2000–2002 tech bust, the 2008–2009 financial crisis, the early 2020 pandemic shock — all produced losses that felt catastrophic in the moment.

Siegel’s data shows that these declines, as severe as they are, have been temporary. Markets have recovered from every one of them. But that recovery takes time — sometimes years — and it requires investors to remain invested through conditions that feel genuinely threatening.

Warren Buffett has said many times that the formula is simple: buy a low-cost index fund tracking the S&P 500, add to it regularly, and leave it alone. His point is not that stocks are easy. It is that the strategy is simple and the behavior required to execute it — patience through volatility — is where most investors fail. Buffett has gone on record saying that most professional active managers, over time, do not outperform that approach net of fees.

We take that seriously at Clearfront. We also believe that for business owners and high-net-worth families, the question is not just whether to own equities — it is which equities, in what structure, in what accounts, and as part of what overall plan. That’s the work of ClearCapital™.

How We Apply This at Clearfront

Our equity approach is built around broad, diversified ownership across five primary buckets: international equities, large cap growth, small cap growth, large cap value, and small cap value. This structure is grounded in decades of academic research — including the factor-based work of Eugene Fama and Kenneth French — showing that diversification across size and style reduces concentration risk while capturing long-run return premiums.

We are not stock pickers. We are not market timers. We own diversified equities, we maintain discipline through volatility, and we let the long-run math work.

For business owners building wealth outside their company, or transitioning from business equity into financial assets after a sale, equities are the primary engine of long-run growth. The goal is to outpace inflation by a meaningful margin over a horizon of ten years or more — and to build a financial portfolio that grows independently of what happens inside the business.

Key Takeaways

  • A stock is a fractional ownership interest in a business. Stockholders participate in the long-run growth of that business — unlike bondholders, who only receive their principal and interest back.
  • Over long periods, equities have outperformed every other major asset class in real, inflation-adjusted terms. Jeremy Siegel’s research documents this going back to 1802.
  • In any given year, the market goes up roughly as often as it goes down. Over 20-year rolling periods, the historical record shows consistent positive real returns.
  • Twice a decade, on average, equity markets have historically lost approximately 31.7% of their value. This is the price of admission. Investors who hold through those declines capture the recovery. Those who sell lock in the loss.
  • Nick Murray’s work shows that investor behavior during market stress — not security selection or timing — is the primary driver of long-run investment outcomes.
  • Warren Buffett’s public advice — own a low-cost diversified index, add to it regularly, leave it alone — reflects the same core principle. Simplicity and patience compound.
  • At Clearfront, we own diversified equities across five buckets — international, large cap growth, small cap growth, large cap value, and small cap value — and we manage behavior as actively as we manage the portfolio.

Ready to build wealth beyond work?

For business owners, the financial portfolio is how wealth grows independently of the company you run every day. ClearCapital™ is how we build and manage that portfolio with purpose. Let’s talk.

Book a 7-minute call with Kevin →

Download the Clearfront Blueprint →

Sources

This content is for educational and informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. Please consult with a qualified financial advisor before making any investment decisions.

Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.

This post was researched and written by the author with the assistance of AI writing tools. All content reflects the author’s own views, has been independently verified, and has been reviewed and approved prior to publication.

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