Many investors frightened by two severe bear markets, a global financial crisis and the worst recession since the 1930s, have not yet fully gained confidence in stocks. But a new T. Rowe Price study, which makes the case for a diversified portfolio divided between stocks and bonds, may help calm investors' nerves.

The overall message, says Eduardo Ramos, of Freedom Advisory, in Guaynabo, Puerto Rico, is that “the bond ride is over and equities will bring back their shine.” Stocks have outperformed bonds in all 20- and 30-year periods since 1926, and more than 80% of the ten year stretches. And we’re emerging from a long bull market in bonds. As Jerome Clark, manager of T. Rowe Price’s Retirement Funds notes, the bull won’t last but bonds still work to reduce risk. “Bonds can help dampen the downside of equities, and equities can help increase the return potential of an all-bond portfolio over time,” he said. “That’s the real benefit of diversification.”

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