Depressing decade-and-a-half: Part One

Written by Gary Silverman, CFP®

For well over two decades I’ve given advice to people on how to invest their money. One of the major points I try to make is the importance of taking a long-term view to long-term goals. Another is the importance of maintaining a diversified portfolio.

A theme in my advice is matching the risk of your portfolio to the risk your mind (or less poetically, your gut) can stand. That’s because of the behavior of the markets (which frankly tend not to behave themselves). I tell you that the long-term direction is up, but I also remind you that 1) it is very bumpy, and 2) it has a habit, fortunately infrequent, of taking a decade or more off for vacation.

Starting today, and going on for several weeks, I want to tie all of this together. The reason? Well, my editor (the charming, intelligent, beautiful, witty, brave, and long-suffering Deanna) needs me to fill this space each week; but the main reason is that the last 15 years have been rather sad.

I don’t know how you measure “sad” when it comes to investment performance, but when the growth core of most people’s portfolios, large U.S. stocks, gives an average return of 2.5%, it certainly meets my requirements to be labeled sad. And that’s exactly what happened. From January of 2000 through this last December if you had bought yourself a nice indexed mutual fund that followed the S&P 500 you would have earned a yearly average of 2.5%.

We’ll look at why this dismal performance isn’t surprising. (Hint: It has nothing to do with evil Wall Street banks, who the president happens to be, the state of social services, or immigration.)

Let me dig further into a description of this sad, dismal market. I should note that though I won’t be naming names, all of the returns I’ll be quoting come from well-known mutual funds that I think fairly represent what a retail investor would use.

It’s not just U.S. stocks that have disappointed. If you look at foreign markets, both developed and emerging, you would have seen a return just a couple tenths of a percent lower than what the U.S. was doing. So essentially most of the places that you may have invested in that are classified as stocks would have gained about 2-3%.

I’ve been told that if you invest for the long-term and take on the short-term roller-coaster ride that stocks will give you, you’ll get rewarded. I don’t know about you, but 2-3% doesn’t seem to be an adequate reward for an investment that just a few years ago fell over 50% in just under 1-1/2 years.

Yes, a sad 15 years. One that while I wasn’t surprised by it, I wasn’t particularly expecting it either—let’s just say that I stay prepared for such a beast. Next week we’ll look back at what actually was going on. This was a zig-zaggy market that spent as much time going up as it did going down.

This article was published in the Wichita Falls Times Record News on April 3, 2016.