10 years of a little worse than nothing!

For those of you who follow my investment thinking, you probably know that I don’t do “fancy.”  I don’t want any of us to take excessive chances with our investments.  What I do want, on the other hand, is for us to invest in low-cost mutual funds and develop a lower-risk, well-diversified, equity-oriented portfolio that’s made up mostly of indexed stock funds (both foreign and domestic) and a few other asset types like U.S Treasuries (especially inflation-protected issues) and real estate.  (A 5% commitment to commodities’ funds are fine, too.)

Well, if that’s what I think will work best for us in the future, do you know what you would have earned on the stocks in your portfolio over the past 10 years, as we head towards the final month of the “two thousand oughts”?

Hint: in the dreadful decade of The Great Depression - the 1930s - the average, annual return was +0.1% per year.

But over the last 10 years - from the end of 1999 to the end of 2009 - the total return from stocks, as measured by the S & P 500, was -18% for the entire decade.  If I add in dividends, the return jumps up to -2%, a total return worst than the decade of The Great Depression.

Wow!  Is that awful, or what?

Now learning such a truth might cause some of us to get out of stocks and run for the hills.  And if you are tempted to do that, I would understand why.

But what would you have done in the year 2000 if you learned that from 1981 to 2000, the yearly, compounded return from stocks was 19.85% a year?  (Which it was.)  In such a case, might you have said, “I will invest more in stock”?  If you did, that would have been a BIG! mistake.

After almost two decades of 19+% annual returns, a prudent investor should have left the party and taken their money with them.

Today, with 10 full years of wretched stock market returns behind us, I can’t make your choice for you, but personally, I don’t want to leave the stock market now as the place I’m putting my longer-term money.  No way, not after what we’ve been through!  Possibly, I’m just a fool, but history tells me that after bad times come better times, just as after great times come the inevitable hangover.

So, if you’re thinking about whether to put more money into the stock market, or to take your remaining money out, personally, I’d hang in there.  No promises, of course, but history - and better returns - seem to be on the side of those who have the stomach to endure bad stuff and stick in there until times got better.

No doubt, we’ve got lots of problems ahead - massive debt, torrorism, bigger government, more regulation, higher taxes, and loftier interest rates, to list just a few.  But that’s how it looks today.  Stay tuned.

Remember, a decade ago, with “The New Economy” dawning, it seemed as if it would be blue skies forever.

Turned out, of course, people were too optimistic.  And it may turn out this time that we’re all too pessimistic.

With thanks again going out to the people at “chartoftheday.com,” let me use one of their recent graphics to help us see an important, but difficult economic reality.

It is, no doubt, discouraging to be working or trying to find work at a time when the unemployment rate, nationally, is now 10.2%, and even more - probably about 17% - if we add in the marginally employed and those too discouraged to look for work any more. 

But if you study the chart above, which captures the US unemployment rate, since 1945, along with recessionary intervals, you may see more reason for hope.

Unemplyment is a “lagging” indicator. As such, it does not improve until a recession ends, or even afterwards.  Note, above, when the unemployment rate tops out during each recession.  It peaks at the end, or even after, each recession.  So, while employment may seem dreadful now, there are some clear economic signs (for instance, the stock market, earnings, consumer spending, retail sales) that we are well through or maybe even out of The Great Recession of 2007-8-9-?. 

Whew!  Sure hope so.

We may soon - in months, that is - start reading better employment news.  Keep that chin up!

With my thanks to the good people at “Chart of the Day,” we might take a look at far we have come since the recent stock market March 9th low.  For sure, we’ve come a long way.  But, compared to other market recoveries off stock market lows and recession bottoms, there might be a lot more to come. 

Just look at the chart above and consider how few days of trading we’ve had in this recovery since the March low - about 175 days.  And consider, too, that, during that time, we have rocketed up about 55-60% off the low.  Not too shabby!  But then, look at other recoveries and see what they achieved. 

You’ll see, for instance, that in 1932, during about 25 days,  the stock market rose almost 100%. In 1990, after about 2,000 days of trading, the market had risen almost 300%.

You’ll get no promises from me as to how far and how long this market recovery may run. But, so far, we are still well below-average in what we’ve seen from this recovery.