There are many investment advisors and experts who claim that while stocks may be risky in the short term, they are not in the long term. In the long term, they argue, stocks always beat less risky alternatives. As evidence, they point to the history of equity markets in the United States and note that stocks have earned a higher return than corporate or treasury bonds over any twenty-year period that you look at since 1926. They then draw the conclusion that if you have a long enough time horizon (conservatively, this would be 20 years), you will always generate a higher ending portfolio value investing in stocks than in alternatives.
It is not just individual but also professional investors who have bought into this sales pitch. Following these pied pipers of equity, younger workers have invested all of their pension fund money in stocks. After all, a 35 year-old investor will not be accessing her pension fund investment for another 30 years, a time horizon that should make stocks essentially riskless. Companies have reconfigured the contributions they make to pension plans on the assumption that pension plans will be invested predominantly or entirely in equities. By making this assumption of higher equity returns, they are able to lower their contributions and report higher earnings. State and local governments have used the same assumptions to meet budget constraints.
Aggravating the problem is the shifting definition of long term. While a conservative advisor may mean 20 years or longer when he talks about long term, more aggressive investors and advisors reduce this number, arguing that while stocks may not beat bonds over every 5-year or 10-year period in history, they come out ahead so often (again based upon the data from the U.S. equity markets in the twentieth century), they are safe. During bull markets, investors are all too willing to listen and invest a disproportionately large amount of their savings, given their ages and risk preferences, in equities. It should come as no surprise that books and articles pushing the dominance of equity as an investment class peaked in 1999 at the height of one of the great bull markets of all time.