Part Two: A sad 15 years

Tina Haapala |

Written by Gary Silverman, CFP®

This is the second in a series looking at a depressing decade-and-a-half of investing.

Last week I described the last 15 years. They were sad. From the turn of the millennium through the end of last year the typical stock index fund you might have invested in returned around 2-3%, on average. That’s a far cry from the 9-10% most books will tell you stocks normally do. And let’s not forget we weren’t exactly impatient. Pretty much everybody would agree that 15 years is a long investment horizon. Yet being in exactly the type of investment that’s typically recommended for longer-term holding periods barely kept up with inflation.

Let’s step away from the stock market and look at its likely pairing: bonds. Bonds are essentially loans, and as such tend to be a bit safer since most companies take great pains to make their loan payments (much as you strive to make your mortgage payments). In this case the return was stellar (at least compared to stocks) with an average return of 4.8% over those same 15 years. Just about double what the more risky stock market earned.

What if you did a nice diversified mix like I often tell people to do? Investing in world-wide across stocks, bonds, real estate, commodities, and the kitchen sink would have garnered you in the range of 3-4% from 2000 through 2015 (which makes sense; it’s half-way between what stocks and bonds did). Better than stocks, but certainly nothing worth bragging about. 3.3% is about what you’d see.

So, if it seems like you haven’t gotten anywhere, you might be right.

Yet the last 15 years is not a story of a flat market or even a down market—it’s one of a whipsaw market.

Do you know that if you had invested in the U.S. Stock market over the last five years you would have earned an average of about 10-12% each year? Even 10-year returns would have netted you close to an 8% average. The exact amount depends on the specific area of the market and which fund or index you chose to use, but my point is that it’s been a good half-decade and a pretty decent decade.

But these last 15 years also brought us something we hadn’t seen since the ’70s: Two massive bear markets within 10 years of each other. About 40 years ago we had the ‘69-‘70 bear market followed by the ‘73-‘74 bear market. Compared to our 2000-2002 and 2007-2009 fiascos it wasn’t all that bad. But realize the two drops of over 40% back then only seem tame after our double dips that were each in excess of 50%.

Of course, the granddaddy of them all was the great depression which had declines that make our 50% losses seem tame.

There you have it: Three massive double-dip sell-offs over the last 100 years. Why bother? We’ll find out next week.

This article was published in the Wichita Falls Times Record News on April 10, 2016.