A “lost decade” for stocks? Buy and holding stocks dead? I don’t think so.
Larry Fink, the CEO of Blackrock, a man whose opinions I very much respect, repeated this in an editorial in The Wall Street Journal on Monday, saying investors suffered a "lost decade" investing in stocks.
On Sept. 29, 2000, the S&P 500 index closed at 1,436 ... almost exactly where it is today. There is the source of all these “lost decade” comments.
Let’s run some numbers. Suppose you put $100,000 in the S&P 500 right on that date. What would you have today, assuming reinvested dividends?
For comparison, let's include the same calculation for the Vanguard Total Bond Index, which owns all parts of the bond market (there were no bond exchange-traded funds in 2000).
For fun, let's throw in investing in emerging markets, using the Vanguard Emerging Markets Stock Index.
Here's the returns after 12 years of holding these investments, with reinvested dividends:
Investing $100,000 (on 9/29/2000)
S&P 500 Index 25%*
Total Bond 100%*
Emerging market stocks 233%
Hmm. Well, strictly for the S&P 500, it is not a "lost decade," but it is an underperforming decade compared to bonds. Emerging markets were a great investment, however.
Let's look at this differently. Suppose you were to invest $100 a month, starting on September 29, 2000, in each of these three indexes. Every week for the last 12 years, regardless of what happened, with reinvested dividends. That's a total of about $14,500 in each fund. What would those returns look like?
Investing $100 a month (since 9/29/2000)
S&P 500 Index $20,300
Total Bond Market $20,600
Emerging Markets Index $30,200
Well, well. Look here: the returns on the S&P 500 are just about the same as the returns on the Total Bond Market!
How did this happen? Because the S&P was very volatile in the last decade. Because of dollar cost averaging, you were putting money in as the S&P 500 was sliding in 2000, 2001, and into 2002 ... and then made money for the next several years. The big drop in 2008-2009 (almost 50 percent) was ugly, but again you were putting money in at the bottom and buying all the way up.
Buy low. Duh.
A lost decade? I don't think so, if you look at it from the point of a steady investor. And most people in 401(k)s are steady investors.
My thanks to Dan Wiener and Jeff DeMaso at Vanguard Advisor Investments for crunching the numbers.
—By CNBC’s Bob Pisani; Follow Him on Twitter @BobPisani
*A previous version of this story contained a transcription error that stated for this table: S&P 500 Index 125% and Total Bond 200%.
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