Tuesday, July 15, 2008

Investments: 1999 to 2008. Not quite what we expected.

Back in the 90s we thought of ourselves as conservative investors.

We didn't buy that NASDAQ blarney, when prices went crazy we bought less but held our index funds. We figured we'd earn 7% or so a year over a twenty year period, and maybe we might even retire.

One day. Maybe.

Fidelity still talks about that 7% a year number in their marketing materials. It's good for a bitter laugh, but really the humor is wearing thin.

Here's what the S&P looks like from 1999 to 2008 - an era largely controlled by the GOP.

This Yahoo! Finance Charts graph doesn't show losses due to fees and taxes and gains due to dividends, but it gives the general sense of how the market has done:

Click for a larger view, but you can probably see the story. It's been quite a ride, but on average pretty flatline for about 9 years. That's flatline when you don't consider inflation of course.

The trend is likely to continue downwards for a while, so we'll be looking at a flatline decade.

It used to be assumed that index funds held for at least 10 years were a pretty safe investment, but let's take a look at the longer view, again you can click for a magnified view. (Yahoo Charts are a real gem):

Ok, so things got a bit ... stimulating from about 1980 to 1995. No wonder I grew up thinking a 7% return was reasonable, even allowing for the madness of the late 90s.

Now let's drill down a bit at 1968 to 1978 -- including a gap in Yahoo's data. On this scale it's almost as volatile as 2000-2008, but over that decade things are flat to negative. Since inflation in those days ran at 8-12% the real returns were probably much worse than what we see here even after adjusting for higher dividend payments.

Stocks sucked in the 70s.

So we see that the "stocks are the safest investment" over a decade all depends on which decade you're talking about. Really, the long term safe return period is more over fifty years than ten years. So that means by the time a physician gets real income at age 30, they're already too old to bet on a 50 year outcome.

Our current retirement plans are to take up smoking, hang gliding, base jumping and heroin at age 65.

Thank you GOP. You've sure done wonders for us.

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