5 Depressing Facts About Stock Market Returns
This is going to be an extremely politically incorrect article, and I’m already bracing myself for the onsaught of inevitable emails that will be filled with angry investors who have a religious-like faith in the stock market.
I don’t have that faith. I do own publicly traded stocks, and probably always will own publicly traded stocks. I also have money in private equity, gold, silver, bonds, Treasury Bills, and a collection of savings accounts.
The stock market is a good addition to a portfolio. But it shouldn’t be seen as some kind of guaranteed long-term investment. Over the next few decades, you could lose a lot.
Over the next decade you could lose a lot. It might take you 30 years to just get your money back for every dollar you put in the market today.
It’s volatile, risky, and after inflation the returns are low and spotty. Here’s the actual data:
- 1. Over 3 decades of losses. After inflation, the stock market produced essentially no returns at all during the 1960s, the 1970s, and the 2000s. After inflation, the returns for the other decades were minimal at best. After taxes, this looks worse.
- 2. 50% chance of failure. If you have invested any money in the S&P 500 at any time in the last 6 decades, you would have over a 50% chance of either just barely breaking even, or losing a substantial amount of the money you would have invested over the next decade.
- 3. After 25 years, you lose over 60%. Trying not to depress myself here, but this is amazing… between roughly 1960 and 1985, over a span of 25 years, the S&P 500 lost over 60% of its value, gradually.
- 4. A decade later, you lose over 20%. Between 1999 and 2009, the stock market lost over 20%.
- 5. It’s actually worse than it seems. This is all assuming that the official inflation rate is legit, and isn’t about twice as bad as reported. This means the real returns are way, way worse… because inflation is over 5% right now, and the official rate is less than 2%.
In other words, if your portfolio consistently beats inflation, you’re doing fantastic. The approach of most people is to make money in the stock market. That’s not good, and they end up getting butchered like sheep. The best approach is to try to simply not lose money. Don’t be greedy — be careful.
The key to investment security is obviously to diversify. This doesn’t just mean buy lots of different types of stocks — it means buy other investments like precious metals, bonds, TIPS funds, etc.
Stocks shouldn’t ever be more than 50% of any portfolio — that’s just pointlessly risky, and stocks haven’t been proven to increase over a few decades enough times to justify being such a large portion of any portfolio.
To learn more about setting up a portfolio that’s balanced and will do well during recession, depression, prosperity, deflation, inflation, and almost every other market, check out PermanentPortfolio.net, a project of Stand Strong Research that explains how to set up a portfolio that’s simple to manage, relatively safe, and has an amazing record.