Skip to Content
The Short Answer

Lessons from the Lost Decade in Stocks

What investors should learn from 10 years of weak returns.

Before the weather turned cooler recently here in Chicago, I was an avid beach-goer. I love to swim and play in Lake Michigan, pollution warnings or not. But how am I able to wade through a body of water whose average depth is 279 feet? (I'm tall but not that tall.) The answer, of course, is that the lake's depth varies widely, from mere inches at its most shallow to more than 900 feet at its deepest.

The stock market isn't much different. Over very long stretches, stocks, on average, have returned around 10% annually. But in any given year--or even over several years--the stock market can diverge markedly from its long-term average. Throughout the prosperous 1990s, for instance, the S&P 500 Index rose 13% per year. No wonder S&P 500 Index funds were widely touted as can't-miss investments.

The past decade hasn't been so kind, however. Through August 2008, the S&P 500's annualized 10-year gain was just 4.7%. It's been a wild ride along the way, too. After soaring in the late 1990s, the index slumped more than 40% in the March 2000 to October 2002 bear market and then rallied steadily before faltering more recently.