A lost decade

Posted by Marc Hodak on September 17, 2008 under Economics | Be the First to Comment

The next bar on this chart will be below 0.00%, i.e., negative returns:

Yep, if you had invested in the S&P 500 at an average cost of that index over the course of 1998–a year which included the Asian meltdown–the roller coaster ride you would have been on since then–with two years and 32 percent in gains left in the dot com boom, followed by the bust, followed by the strong gains until last year before this credit crunch–would have gotten you right back where you started.

Which is about 35 percent worse off than if you had left that money in a passbook savings account. Which represents very negative real returns.

I know the mantra is “it always comes back,” and I’m still committed to the market for my long-term funds because I believe there is a risk premium for holding equity. It’s times like these that create that premium, by reminding us exactly what the risk looks like. Something to keep in mind when I begin to near retirement.