A "decent decade" after all?
Commentators almost seem to have been competing to coin the catchiest—or most negative—label for the ten years from the end of 1999 to the end of 2009. It’s not surprising that some have called it the “Decade from Hell,” given the 9/11 attacks, wars in Iraq and Afghanistan, Hurricane Katrina, a deadly tsunami, the nastiness of domestic political discourse, soaring unemployment and federal budget deficits, etc.
Comparatively speaking, investors had it easy—merely having to cope with two severe bear markets for stocks within the decade, along with a nasty housing-price slump, the credit crisis, the rescue of a number of financial institutions, and burgeoning federal deficits. Because the overall U.S. stock market had an average annual return of –0.25% (as measured by the Dow Jones U.S. Total Stock Market Index), the past ten years have been called “the lost decade” for stocks. And it definitely was no picnic.
However, investment advisor Richard A. Ferri, writing in his “The Indexer” column on Forbes.com, argues that it was actually “a decent decade” for diversified buy-and-hold investors.
He notes that, as nasty as it was, the decade was not disastrous for a diversified portfolio—especially one that was rebalanced periodically to keep the asset mix in line with the portfolio’s intended asset allocation. Mr. Ferri’s numbers are accurate, and I agree with his defense of a buy-and-hold approach to a diversified portfolio strategy.
But the tricky part—as always with investing—is being able to stick with the plan, either when a particular segment of the market is soaring or when it is plummeting. For example, even when you believe that rebalancing is the smart thing to do, it can be emotionally difficult to add to the portion of a portfolio that’s been underperforming or to reduce the portion that’s been on fire.
Notes: All investments are subject to risk. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results. The link to Forbes.com will open a new browser window. Vanguard accepts no responsibility for content on third-party websites.
I’ve been investing since 1974, and although the last decade was not the best for my investments, it was anything but a disaster. I held a diversified portfolio of stock funds and bonds that included micro-caps, foreign, and emerging market stocks along with domestic stocks. Part of the decade I was retired and withdrew substantial funds from investments for living expenses. Still, the value of my portfolio was 70% higher at the end of the decade than it was at the beginning.
I didn’t do anything special–just remained diversified, avoided fads, kept expenses low and rebalanced. These things have worked for me for more than 30 years. I consider the current fad of questioning the value of investing in stocks just another dangerous fad.
a diversified buy-and-hold investor – - that’s me and I feel good about it.
To rebalance I use the Vanguard portfolio analysis tool.
I suppose it always could have been worse but this decade was rough enough as it is. You know it got me thinking, Im real sick of these wild swings in stock prices, down 30% one year, then soaring back 30% the next. Have we said goodbye to the years of (reasonably consistent) returns of 8%? There just seems to be so much volatility.
As far as I know, over the past 80 years there has never been a decade of reasonably consistent returns of 8% or any other percent for that matter !!!!
Investors need to recognize that elections make a difference. The republicans controlled the Presidency and the Congress in eight of the 10 years. The S&P Index went from 1320.28 at the beginning of the “W”years to 903.25…a loss of 31.6% even though he lowered taxes. During the eight Clinton years, the S&P went from 435.71 to 1320.28 even though he raised taxes. He also ended with a budget surplus of $421.6 billion surplus. The impact of the Obama administration remains to be seen, but concentration of wealth among the the top wealthier groups is hazardous to investing since spending by consumers increases wealth even with increased taxation. Concentration of wealth among fewer elements at the top income brackets of economy lowers rather than increases spending.
The economic data disregards the politics in Washington, nonetheless,the economy does respond to such activities usually negatively when investing and saving trumps spending by the economy at large. Fear has gripped the nation in the past few years and spending has contracted among those who spend the largest percentage of their incomes. Those of us who save and invest frequently slow the economy rather than stimulating it.
I’m a vanguard customer… where’s my auto-rebalance feature?
Today to rebalance I have to maintain a separate spreadsheet to determine the amount that I have to transfer from my “winner(s)” to my “loser(s).”
It sure would be nice to just specify a per fund asset allocation (as a percentage) and then just click a transfer button.