This article by Dan Richards gives a good feel for how historical data can help with understanding risk, reward and how to structure your investment horizon.
Here is an excerpt of the article:
Many investors are looking for a magic bullet that will reduce the risk in their portfolios without
Regrettably, until such time as the laws of nature are repealed, there are only two time-tested
ways to reduce risk while maintaining returns.
One way is through more sophisticated portfolio construction – going back to the 1950s, the
pioneering work on diversification by Nobel-laureate Harry Markowitz has led to extensive
advances on mixing investments to optimize risk and return. In fact, in some cases better
portfolio construction can both reduce risk and increase return.
The other approach to reduce risk without decreasing return is to extend the time frame for which
risky investments such as stocks are held.
Read the full article here: Long Term is the Magic Bullet for Risk – Globe & Mail article, July 30, 2010