March 21, 2013

Past decade for stocks wasn't that bad

My neighbors recently sold their house and possessions to move down to Mexico. While they were clearing out the contents of their house, I bought a large solid wood table from them. The owner helped me move the table thirty feet into my house, after which we started talking about investments (as one does while moving tables).

As a psychologist my neighbor was an investments novice. One of his first questions was about where to invest because, as he confidentially claimed, stocks have done badly. In fact, if you ask most people walking down the street about stocks, most will probably say they have been a bad place to invest over the past decade.

So I looked into this and, using a simple analysis of calendar year returns, it turns out the layman's sentiment towards stocks is wrong.

The chart below shows the calendar year performance (total returns) for the S&P 500 over the past decade. Derived from this chart, here are some interesting facts that my neighbor probably doesn't know about the past decade for the S&P 500:

- There was only one negative year

- During five of the past ten years (including recent years) stocks performed better than the long term average

- Over the entire period, investors that bought and held the index would have done very well
Stocks are always risky, but anyone who bought the index a decade ago is probably quite happy. In fact, one might go as far as to say that the past decade for stocks wasn't really that bad.