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Friday, April 8, 2011

The Lost Decade?

Frequently a phrase arises that captures a certain sentiment, and it proliferates to the point where it is repeated without thought. "The lost decade," describing the 10 years ended 12/31/2009 is, IMHO, such a phrase.  Everyone knows that investors got beat up over this 10-year period and their investments lost ground. Did they really? Which investors lost ground? How did the market indices do?

A financial columnist for Financial Planning magazine, Bob Veres, has written an insightful article discussing the difference between investing and gambling in which he provides some performance numbers for the so-called lost decade.

He states that, over the 10-year period ended 12/31/2009, the Wilshire 5000 had a negative average annualized return of -0.2% but the mid-cap index was up 4.6%/year and the small cap index rose 4.3% on average per year. International stocks lost -1.1% on average per year.

He goes on to say that with "...a reasonable percentage of bonds..." and rebalancing at least every year and " best opportunistically..." aggregate returns would have ended up a bit higher than 3%. As he points out, this isn't a performance that gets you "...shrieking in triumph"... but it did beat the rate of inflation.

All of this is used to argue that the odds in investing, even over a period of horrible luck relative to historical performance, are considerably better than you'll find in Vegas and other realms of the gambling world. My take-away is that, although the decade was a rough patch, it wasn't really a "lost decade" especially for those who followed the principles of diversifying among asset classes and rebalancing. This, of course, hasn't even touched on those who took advantage of dollar-cost averaging.


  1. Very true Robert! Not everyone lost! Those who stuck to fundamentals actually made money. I too did a similar research which I'll share soon!

  2. @MoneyCone I'll be interested in what you found. I'm also going to look at the BlackRock performance chart to crank out some numbers when I get around to it.
    My concern is that young people throw up their hands and say it isn't worth investing ....look at the "lost decade".

  3. Yep, with rebalancing and DCA it wasn't that horrible, especially if you took advantage of the bear market of 2009.

    In the short term it's been painful but in the long term one can look at it as a decade of cheaper purchases than otherwise.

  4. It's a lost decade only for those who don't diversify beyond US large cap stocks. Many other asset classes did quite well, see here: