Life, as we all know, is unfair. You can shun cigarettes all your life and still get cancer, while your chain-smoking uncle lives to 100.

It's the same with investing. What's one to say to the stock-market investor who did everything right - diversified, used indexed funds, stuck with it for the long term - and got hammered anyway?

A disturbing story in The New York Times, relying on research by Morningstar Inc, the market-data firm, points out that people who invested in a Standard & Poor's index fund 10 years ago have lost money, while folks who bought diversified portfolios of government bonds made 8.1 percent a year. In fact, the S&P 500 has underperformed long-term government and corporate bond categories over the past 20 years, largely because stocks did so poorly over the past 10.

As most investors know, this turns conventional wisdom on its head. In the 20th Century, stocks returned a bit over 10 percent a year, bonds a bit over 5 percent and cash about 3 percent. Stocks, we've been told over and over again, are the best investments for the long run.

So, should we throw this rule out? Probably not, but it should be kept in perspective.

The first big problem is how to deal with freakish events like the dot-com collapse and subprime mortgage crisis that torpedoed the stock market in this decade. Freakish events distort the picture. On the other hand, they do occur from time to time - there was the S&L crisis, the oil embargo crisis, and so on. Any long-term strategy has to assume freakish events will strike unpredictably.

Because the past decade was so atypical, it's not reasonable to use it as the standard for a long-term plan. But it's also foolish to assume you'll earn 10 percent a year on the S&P 500, even though lots of people did before the past decade. It's probably more reasonable to expect something like 6 or 7 percent.

Second, we should keep the S&P 500 in its place. It has long been used as the chief barometer of U.S. stocks, but it really represents just the 500 largest U.S. equities. It's a relevant gauge because those stocks contain the lion's share of investors' money, but there are thousands of other stocks which can be measured with other indexes, and some have done much better than the S&P 500.

The MSCI US Mid Cap 450 Index represents mid-sized U.S. companies, and has produced average annual returns of slightly over 7 percent for the past decade. The MSCI US Small Cap 1750 Index, tracking small-company stocks in the U.S., returned about 5.7 percent a year over that period. You can duplicate the performance of these groups with index-style funds mirroring the indexes' holdings.

Then, of course, there's the rest of the world to consider. Financial advisors typically suggest Americans devote from 10 to 40 percent of their portfolios to foreign stocks. One of the best-performing multi-country foreign indexes was the MSCI Emerging Markets Index, averaging returns exceeding 11 percent a year for the past decade. It contains stocks of about two dozen less-developed countries such as China, Russia, Argentina, Brazil, Mexico and Turkey.

An investor seeking an easy way to cover all bases could choose a global fund that holds U.S. and foreign stocks, such as Vanguard Total World Stock Index Fund Investor Shares (VTWSX). The fund has only been around since June 2008, but the index it tracks, the FTSE All World Index, has returned about 2.5 percent a year for the past decade.

Morningstar recommends a number of similar funds: American Funds New Perspective A (ANWPX), Dodge & Cox Global Stock (DODWX), Oakmark Global I (OAKGX), Oppenheimer Global A (OPPAX), T. Rowe Price Global Stock (PRGSX), Third Avenue Value (TAVFX). (Find any of these by typing the ticker symbol at Morningstar's site.)

Third: although bonds have run circles around stocks for the past decade, the party maybe coming to an end, making stocks comparatively more attractive. Most of the bond gains have come not from interest earnings but from bond-price increases driven by falling interest rates. When prevailing rates get lower, investors will pay more for older bonds carrying higher interest rates, or yields. A 1 percent drop in interest rates can easily produce a 5 to 10 percent gain in the prices of older bonds, depending on factors like how long the bond has to mature.

Today, interest rates are extremely low and much more likely to go up than down. That would reverse the process, with higher yields on new bonds making older bonds less attractive, driving their prices down. Move a lot of money into bonds today and you could suffer big losses in coming years.

When all these factors are taken into account - the freakishness of the past decade, the benefits of diversifying beyond the S&P 500, the big risks now facing the bond market - stocks still look like the best long-term bet.

Jeff Brown is an experienced business journalist and personal finance columnist who has written for The Philadelphia Inquirer, The New York Times, and TheStreet.com. Read his bio to learn more about him.

Blog made possible with support from the Corporation for Public Broadcasting.