Bidding Farewell to a Crappy Decade…

December 21, 2009

As it stands at the writing of this post, the S&P 500 Index returned -9.16 over this past decade (January 2000 – December 21, 2009). Here are a few interesting tidbits I gathered from the data:

• Of the 120 months of this past decade, 50 of them had negative returns.

• Of the 50 months with negative returns, the worst was October 2008’s -16.8%.

• The average monthly return over the decade was .03% (highly misleading–see the next point).

• The geometric average monthly return over the decade was -.08%.

• Of the 70 months with positive returns, the best was March 2000’s 9.78%.

• $10,000 invested on December 31, 1999, would be worth $9,083 at the time of this writing (hypothetical…does not include fees).

• The peak value of that $10,000 investment would have occurred in October 2007 at $11,992.

• Dollar-cost-averaging $83.33 per month ($10,000 total) over the decade would be worth $10,689 at the time of this writing (again, hypothetical as it does not include fees).

Even as bad as the past decade has been, it’s hard to be optimistic about the coming decade due to valuations. The S&P 500 Index currently has a P/E ratio of 85.93 and a dividend yield of 1.98%—not exactly bargain territory. Our only hope is that corporate earnings pick up and pick up fast.

17 responses to Bidding Farewell to a Crappy Decade…

  1. Even though it was Crappy, as you put it, it was a great decade as I am so close to being debt-free, which make the 2010’s my richest decade ever.

  2. Investing professionals liked to say that there has never been a 10-year period with negative returns, as a reason to invest in stock mutual funds. Guess someone will need to come up with a new pitch now.

  3. Yet, if you invested in gold, your $10,000 would be worth $37,509 today.

    Sam) We’ve had negative 10-year returns for the S&P 500 every month since November 2008. It’ll remain so over the first half of next year as well, since at this time 10 years ago, we were still in the raging Dot-Com bubble.

  4. Are these numbers before dividends or is this the return after dividends? If after… geesh, may as well just do 100% GIC’s.

  5. Where do you get this P/E ratio from? On LTM earnings, it’s more in the ~22x range if I’m not mistaken?

  6. Turning,

    The P/E ratio in this case is most likely based on most current earnings.

  7. Thanks for the post. This is why you’re supposed to diversify and rebalance. Re-invest your dividends and keep buying. It’ll be alright.

  8. BG – good point about the gold and 10-year returns. A friend of mine was buying gold coins since the early 90s. He said – it’s just in case something really bad happens. As we were making money in stocks at the time, we thought he was crazy…. Now it seems we were the stupid ones. As he also got out of the market in the early 2008, said “I don’t like the smell of it”.

    Mind you, I am in positive territory overall but this is because a) I made money in real estate b) I wasn’t fully invested c) I got some money back this year not all though. Still negative ROI for the last 2 years in 401K, but -8.6% in that period isn’t terrible. Not sure about ROI during last 10 years in 401K – after my employer modified the plan, the history before 1/1/2008 was lost. I have it on paper, but it’s too much hustle to go through all paper statements and calculate ROI.

  9. To echo Prince Of Thrift, the decade wasn’t great for stocks, but was good for me personally. I graduated college, got a ‘real’ job, got married, had 2 kids, started retirement savings (I’m even a little ahead when looking at ROI), and am debt free since paying off student loans.

    I predict more ups and downs in the next decade and I’ll work to make sure the ups outnumber the downs.

  10. JLP says, “Our only hope is that corporate earnings pick up and pick up fast.”

    Hope is the operative word here. The reality, I fear, is more grim. We have been extending debt at a faster pace than GDP growth since the mid-80s. The difference between the two has grown substantially in the 2000s. But, that has stopped. Now, we are witnessing debt deflation or eradication. GDP was artificially high due to the extra debt. Now it must compete against a shrinking debt base. Gonna be tough. Even with the government creating more debt, it won’t has as strong of an effect as private sector debt since the government fails to utilize capital as effectively as the private sector.

    @Turning Heel: The 85 P/E value that JLP refers to is reported earnings. The 22x you reference is operating earnings. There is a huge difference between the two. Reported earnings are figued by using the official GAAP accounting methods. It shows the bottom line (meaning real) earnings a company creates. Operating earnings are reported earnings minus “one-time” expenses. These expenses could include restructurings, write-downs (think banks), layoff expenses, and any other item the accountants deem as “one-time” or non-recurring. As you can imagine, the craft accountants at the corporations have been discounting lots of expenses as one-time items. And, these differences between the two earnings are getting larger every year. In the early 1990s, when operating earnings got its start, the difference was less than 10% between operating and reported. Now, it is over 30% and climbing. The reality is investors are buying a future stream of earnings when you buy a stock. If you ignore the “one-time expenses”, you may be expecting more earnings than you will eventually receive. So, I would keep my eye on reported earnings P/E ratios if I were you. Every secular bull market has had a P/E ratio of 10 or below – based on reported, not operating, earnings. I suspect we won’t see a long term bull until we get back to those levels.

    That means the next decade may not be much better. Many pundits will say that the low return for the 2000s dictate a good return this decade, but the 80s and 90s were the best performing decades ever for the stock market. We may have been way overvalued, and it could take a while to get though that.

    Hate to be an Ebeneezer Scrooge so close to Christmas.

  11. I am really looking forward to 2009. I hope that things are fantastic for everyone!

  12. Goodbye to a decade in which the worst president in US history was elected not once, but twice, and left us with the worst economic condition since the Great Depression.

  13. It was a great decade for us and the next will be even better. No matter what is going on in the economy there are still opportunities to be found if a person will look and act.

  14. Those are some scary numbers. But if you timed it correctly and pulled your investments in certain markets out at the right time (i.e. just before the bubble burst), how would your numbers have changed?

  15. As I’ve said (ad nauseum), diversify, diversify, diversify. This was the decade of fixed income (as noted by Bill Gross at Pimco). Holders of CDs and other fixed-income did quite well. Folks with balanced portfolios (age in bonds comes to mind) did OK, if not spectacularly. Folks who plowed all they had into stocks got hosed.

    JLP, I still say you ought to have a bit in bonds, dull as they might be. At your age (40ish), a 60/40 asset allocation might be something to consider. By the way, a laddered portfolio of CDs (I’m thinking five-year CDs) counts toward that 40%. Some five year CDs are pushing 4% these days.

    Just a thought.

    Just my $.02.

  16. PS: I admit it’s easier to construct a CD ladder from scratch when the yield curve is flatter. Alas, with the Fed holding short-term rates so low, your best bet is to bite the bullet and go long, then add to your position once a year. Buy a five-year this year, another five-year next year, etc. When the CDs mature, replace them with CDs of like maturity.

  17. John (comment #12),

    No, Obama’s only been elected once!