… Then you probably have been through more than a dozen panic attacks and at least one major heart attack within the last 10 years. 
Here is why. Look at how the S&P 500 index (SPY Exchange Traded Fund) has performed during the last 10 years:
It certainly doesn’t look like a place to be if you get nervous at every minor fall in share prices.
By the way, if you compare the latest market slide - that tiny drop at the rightmost end of the graph - against the major downturns that have occurred earlier, you can see that it’s really not that big of a deal (at least not yet).
So, take heart and this too shall pass.
On a more sobering note, it looks like the S&P 500 has not performed very well when averaged over the last 10 years… and 10 years is a pretty large span of time (or is it just my perception?).
Forget about the rapid ups and downs in the curve - if you invested at random from a period between 1998 ~ 2002, you probably haven’t made much more money than what you would have made in a high interest savings account. If you invested around the year 2000, you may have even *lost* money after taking inflation into consideration. May be these are the people (who invested a lot during 1998 - 2002) who are worrying more about the recent events (?).
Of course, this doesn’t have any bearing on 20-year or 30-year performances, or some other 10-year performances (different time-frames will result in different returns). It’s just that I am just wondering if it’s not a good idea to put most of your money in such an index fund (or probably the stock market as a whole) if you are intending to keep it there for less than 10 years. Especially if you have a weak heart.
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The chart shows that investing in treasury bonds would have done just as good over this period
10 years is nothing. To get the long-term perspective, I regularly consult Shiller’s data (accompanying his books), at:
http://www.econ.yale.edu/~shiller/data/ie_data.htm
Shiller’s data has only been updated through mid-’06, but it’s not hard to run one’s own numbers. finance.yahoo.com tells us that Aug ‘97 to Aug ‘07, weekly SPY closes show:
5% nominal annual returns w/o dividends
6.5% nominal annual returns w dividends
Any inflation calculator will estimate for you that inflation has done about 2.5% annually over the past 10 years.
So that tells us that stocks had a real return of about 2.5% annually w/o dividends, 4.0% annually w/ dividends.
T-bills have yielded on average about 3.5% over the past 10 years, so even with the trouble in 2000-2002 and the little dip recently, stocks w/ dividends have still outperformed T-bills by a wide margin (6.5% nominal vs. 3.5% nominal).
No fear.
That graph is hilarious. Something about the “here be heart attack” cracks me up. I don’t really have any fear, but that’s because I have very little invested. Good post!
Interesting chart which shows just how minor this has been so far in the grand scheme of things. At the current moment it always seems like a massive panic, but the overall chart still looks quite nice!
Moom: Yep.. that’s what I was thinking. But, probably it’s not a long-enough time frame.
Steve: Thanks for the perspective. Shiller’s data is indeed a good resource.
Aaron: Yep.. the grand scheme of things is what matters. But, it’s nevertheless fun to see people go nuts with little drops.
Does That Make Me a Vulture
I’m enjoying this downturn in the stock market and real estate market. I own stock funds but thankfully, I’m not a home owner yet.
I’m actually hoping for a even bigger plummet in both markets so I can swoop in for greater bargains later on. The reason I have no fear is because I know in the long term, cumulatively the market has always trended upwards.
-Raymond (MONEY BLUE BOOK
The markets have always been scary for the common investors. Its the specialists who play with the markets.
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