Friday, April 24, 2015

The Secret to Investment Returns in a Flat Market

The Nasdaq index is making headlines this week as is closes north of 5,050; closing at a new all-time high close for the first time since 2000 - according to USA Today "fifteen long years" after reaching its zenith of 5,048 on March 10, 2000 during that epic peak of the great dot-com bubble.   

Back at the end of 2008 when the credit crisis was at its nadir, there were abundant articles and news programs (60 Minutes even had an expose) decrying the 'lost decade' in the S&P 500 after it had dropped 40+% in the previous 15 months.  These 'lost fifteen years' of the Nasdaq must surely have been worse, given its much steeper drop (down 78% between 2000 and 2002 to it's low of 1,108) and much longer recovery period.  

 Let's take a look at how bad it was.

If an investor had started near the peak and begun investing $1,000/mo in April 2000 into the Nasdaq composite index, by April 2015 he would have of course invested $180,000.  If he did this every month - sticking to his plan, ignoring the credit crisis, second gulf war, housing bubble and simply investing month after month - his account value after the 'lost fifteen years' of the Nasdaq would have been just north of $390,000.  

If you're keeping score at home, that's an annualized return of around 9.75%.

Hmm - I guess 'Nasdaq Index Goes Nowhere But Nets Investors Nearly 10% per Year' doesn't make very good headlines.  But the fact is that consistent dollar-cost-averaging into stocks remains a sure way to have a successful investment experience regardless of what the market does.

It's good for us that the people we serve care more about facts then headlines!

1 comment:

  1. Superbly written article, if only all bloggers offered the same content as you, the internet would be a far better place..
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