STOCK RETURNS VARY BY DECADE

  STOCK RETURNS VARY BY DECADE
Stock market returns are not consistent; in fact, they vary all over
the map. That fact is what drives investors crazy. They never seem
to know if they should be buying or selling. Listening to the advice
and predictions of the Wall Street crowd further confuses investors.
If investors are fully invested during up trends, they can experience
excellent returns. Unfortunately, the down trends can take
away a good portion of their gains, if they just follow the buy-andhold
approach. Consider the wide variance in average annual stock
market returns during the seven decades since the 1930s, shown in
Table 1-2.
The 1950s, the 1980s, and the 1990s produced above-average
returns in the neighborhood of 18 percent, while on the flip side the
1930s, 1960s, and 1970s provided less-than-stellar returns, around
6 percent or less. The 1940s provided a return close to the 10.2 percent
annual return of stocks between 1926 and 2002. As you can
see, the 1995–1999 period was an anomaly, which produced abnormally
high returns for those who stayed fully invested during that
time period. Since the beginning of 1995, had those same investors
,
TA B L E 1 - 2
S&P 500 Decade Performance Statistics
Decade Average Annual Return*
1930s 0.05 percent
1940s 9.17
1950s 19.35
1960s 7.81
1970s 5.86
1980s 17.55
1990s 18.21
Other periods:
1995–1999 28.45
2000–2002 14.59
been holding their stocks and mutual funds through October 9,
2002, they would have sustained substantial losses, depending
upon their investment portfolio mix. (Remember that many
investors had high exposure to the technology sector.)