Happy Independence Day!
The Fourth of July often feels like a mid-summer holiday where we enjoy a few days off from work and spend time with family and friends. It is a reminder of the blessings we have as a country and the freedoms we enjoy as Americans. For me, it also includes our financial independence and the benefit of a free market. We can spend and invest however we choose. As a child in 1976, I vividly recall the bicentennial anniversary of our country and wondered just how far the markets have come over the last four decades.
The current decade (2010-2017) benefited stockholders with a positive total return of 140%. This has been one of the longest economic recovery periods in history due, in large part, to the Federal Reserve stepping in post 2008, record low interest rates, and major asset purchases. Investors were rewarded for sticking with stocks during this period, but as rates move higher, it has left a wave of volatility in its’ wake.
The decade of the 2000’s (2000-2010) has been referred to as the “lost decade” because the market dropped 14% from start to finish early on with the dot com bubble burst and again in 2008 with the mortgage crisis. There are only two other periods in the market’s history where a 10-year return is negative; 1929 and 1966. Opportunities to invest during this period were probably the best I’ll see in my lifetime.
The 1990’s reversed course again and turned positive with a total return of 316%. The economy expanded and grew so rapidly the Federal Reserve raised interest rates 7 times from 1994-1995. This was an excellent time to own stock, apart from the Long-Term Capital Management bailout in 1998.
Finally, the 1980’s added 227% of return even though inflation and interest rates were in the double digits. Gasoline prices soared and we weathered a recession only to come out of it with a major tax reform and stronger economy. The end of this period also brought about Black Monday where the market dropped over 20% in one day.
There are no guarantees stocks will always remain a good investment, but as you can see from this example, three extended periods of time were positive and only one was negative. Investing can be an uncertain process, but being patient over the long term will maximize the probability you will benefit from market fluctuations.
“Happy Independence Day” was published in the July 2018 issue of Life on the Green magazine, a social publication for the residents surrounding The Woodlands, Country Club, Player Course, where Dan is a resident and is a featured monthly contributor.