The Wall Street Journal calls the past nine years as the ‘lost decade’ for stocks:
The stock market is trading right where it was nine years ago. Stocks, long touted as the best investment for the long term, have been one of the worst investments over the nine-year period, trounced even by lowly Treasury bonds.
The Standard & Poor’s 500-stock index, the basis for about half of the $1 trillion invested in U.S. index funds, finished at 1352.99 on Tuesday, below the 1362.80 it hit in April 1999. When dividends and inflation are factored into returns, the S&P 500 has risen an average of just 1.3% a year over the past 10 years, well below the historical norm, according to Morningstar Inc. For the past nine years, it has fallen 0.37% a year, and for the past eight, it is off 1.4% a year. In light of the current wobbly market, some economists and market analysts worry that the era of disappointing returns may not be over.
Despite the breast-beating the Journal column has generated (one pundit told a local radio station that stock returns will be terrible in the near future), a little perspective is needed. How many investors came into an inheritance precisely in April 1999, invested every penny in the S&P 500 and cashed out entirely on March 18, 2008? If so, how about writing a column on how great stock investing has been in the five years since March 2003 during which time the S&P is up more than 50% not counting dividends? It’s meaningless to pick arbitrary time periods and making conclusions one-way or the other.
It is entirely predictable that after years of sub par returns the ‘long term’ has come to mean a time frame of nine years. It is also an encouraging sign because the more investors throw in the towel and the lower stock valuations get in the near-term, the better stock returns will turn out to be in the time frame that matters: the really long-term of two decades or more.
