Over the period of 1926-2004, large company stocks provided an average annual return of 12.3% with a standard deviation of 20.2%, while small company stocks returned 17.4% annually with greater volatility. Long-term corporate and government bonds offered lower but steadier returns than stocks, with corporate bonds returning 6.2% on average and government bonds at 5.8%. Treasury bills returned 3.8% annually with the lowest risk compared to other major asset classes.

1. Risk and Return Lessons from Market History

3. Historical Returns, 1926-2004 Source: © Stocks, Bonds, Bills, and Inflation 2006 Yearbook™ , Ibbotson Associates, Inc., Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). All rights reserved. Average Standard Series Annual Return Deviation Risk Premi um Large Company Stocks 12.3% 20.2% 8.5% Small Company Stocks 17.4 32.9 13.6% Long-Term Corporate Bonds 6.2 8.5 2.4% Long-Term Government Bonds 5.8 9.2 2.0% U.S. Treasury Bills 3.8 3.1 Inflation 3.1 4.3

4. The Risk-Return Tradeoff