Where will the “teens” take equities?

[Lsbcal]

We are 3 years (36 months) into the current decade of the 2010’s. Maybe this will be called the “teens” now that we are in 2013? Anyway, I decided to stack the decades on top of each other and look at the resulting chart. It’s just a handy way to view previous US stock markets, nothing magic here.

Sorry if the chart looks a little complex and congested but if you spend a few minutes it will make sense. The thick blue line is where we stand in this decade as of the end of December 2012. I also laid down a 7% growth line (red dashed line) for reference. I think this is roughly the market average over many years after inflation.

What stands out to me is how terrible the 2000’s (in orange) turned out compared to past decades. Even worse then the 1940’s WW2 decade and also the 1970’s. But note I didn’t plot the 1930’s which preceded the WW2 decade.

Perhaps the experiences of the 2000's has made us a bit too pessimistic now? I'd like to think so. I’m hoping for a wobbly move that follows the 7% slope upwards – but no guarantees.

 

[REWahoo]

I’m hoping for a wobbly move that follows the 7% slope upwards – but no guarantees.

Interesting chart - but if you aren't offering any guarantees I'm not subscribing to your newsletter.

 

[Meadbh]

Nice chart! Not at all difficult to follow. I'll take the 50's, please! Unfortunately, most predictions are for lower market growth, perhaps 5% if we are lucky, over the next decade. Just so long as we avoid the 70's and the 00's.

 

[photoguy]

I started working in late 2001 (if you discount grad school, internships) and the period 2000-2010 have been very good if you DCA throughout especially with salary increases from career advancement. I'd be completely stoked if the 7% trend continues for this upcoming decade.

 

[Midpack]

It does take a little focus to review, but it is worth it, thanks for a great chart! You've posted several excellent charts here over the years, and I/we appreciate it.

As you know, starting with decades is kinda arbitrary, vs starting after each recession or the like. But like Meadbh, I'll take the 1950's for $1000 Alex!

 

[donheff]

Nice chart. I didn't remember the 70s sucking so bad but I didn't have any money in the market back then.

Edit: Oh, yeah, now I remember -- inflation, price controls, horror. Kind of glad I didn't have anything to lose back then.

 

[Andre1969]

About the only thing I remember of the market in the 70's was, as a kid, being excited that I had a savings account that paid 10% interest, but not understanding that it was still losing money. Also remember Mom having a fit when gasoline broke the $1/gal barrier.

I didn't start investing until late 1991, and didn't go full-bore into it until maybe 1999. So, for the 2000-2009 period being a "lost decade", I've done pretty well thanks to dollar cost averaging, rebalancing, and some luck here and there. I just hope I'm as lucky in the 2010-2019 timeframe!

 

[REWahoo]

Nice chart. I didn't remember the 70s sucking so bad but I didn't have any money in the market back then.

Edit: Oh, yeah, now I remember -- inflation, price controls, horror. Kind of glad I didn't have anything to lose back then.

No reason to have anything in the market - interest rates were in the high teens. I recall my dad having a three year CD paying 17%.

 

[Lsbcal]

Nice chart. I didn't remember the 70s sucking so bad but I didn't have any money in the market back then.

Edit: Oh, yeah, now I remember -- inflation, price controls, horror. Kind of glad I didn't have anything to lose back then.

and don't forget Vietnam, Watergate, and the Arab oil embargo all of which probably contributed to that inflation. It's not every decade we get a President impeached, thank goodness.

 

[samclem]

Hey, this decade is shaping up as the best since the 1950s! Don't blink.

It's not every decade we get a President impeached, thank goodness.

In fact, it has only happened twice: Andrew Johnson (1868) and Bill Clinton (1998). Richard Nixon was not impeached (though he might have been if he hadn't resigned).

 

[Lsbcal]

Hey, this decade is shaping up as the best since the 1950s! Don't blink.


In fact, it has only happened twice: Andrew Johnson (1868) and Bill Clinton (1998). Richard Nixon was not impeached (though he might have been if he hadn't resigned).

Oops, you are right on that. Clinton was impeached by the house and acquitted in the Senate. But clearly the Nixon episode roiled the markets. The Clinton one did not (it was up 6.8% between Dec 1998 and Feb 1999, towards the end part of that nice yellow line on the chart).

 

[haha]

Nice chart. I didn't remember the 70s sucking so bad but I didn't have any money in the market back then.

Edit: Oh, yeah, now I remember -- inflation, price controls, horror. Kind of glad I didn't have anything to lose back then.

The 70s were awful for a buy and hold investor who had a portfolio full of stocks and bonds.

They offered spectacular values for new entrants, or for those who had cashed in their chips say in 1972. 1974 was almost unbelievable in the values on offer. And although absolute prices never again reached those fall of 1974 prices, in terms of PEs it all came around again in 1982.

Ha

 

[Donzo]

Don't know where the teens will take us. I do expect a roller coaster ride tho. I am at about 50/50 now vs. 75/25 stock/bonds during the repression. I hopefully won't see such wide swings in the future.
Either way - I will enjoy being free

 

[Lsbcal]

One of the reasons I did the chart above was to try to answer the question: When should I cut back to a more conservative AA? Of course, many here would comment that they are buy-hold types and have already set their AA to take the hit. But that is not me as I like to agonize over this a bit and don't like missing a nice ride.

I would be trying to lesson the impact of a 1987 crash type event -- that crash came after only about 2 months of weakness and did not correspond to particularly high PE's or even an inverted yield curve. You can see that the black curve started going up at a faster rate around month 60 and didn't peak until around month 91. So that was about 2.5 years of excess returns (I'm defining this as above the 7% after inflation slope).

Is there a way to recognize when the market has given up much of its excess returns? Maybe one tactic would be to reduce equity allocations after 12 to 24 months of better then 7% growth (10% with inflation at 3%). That would be even more palatable if TIPS were then returning a decent positive real rate indicating bonds were a good alternative.

 

[ERD50]

Thanks for posting. Especially interesting since it accounts for dividends and inflation, which many charts miss. A few surprises for me -

1) 1980's - I really thought that the after-inflation gains were much less. I know inflation was high (I had a high xx% mortgage, fortunately adjustable, so it went down-down-down), so I figured real gains in stocks were low-moderate.

2) 1990's - I have often heard this referred to as "The Mother of all Bull Markets", yet, the 50's were better (in terms of real growth).

-ERD50

 

[Brett_Cameron]

Lsbcal: Thanks for the chart, it helps with perspective!

 

[azphx1972]

Awesome chart! It provides an interesting perspective for sure.

 

[EvrClrx311]

This is a great chart. Thanks for sharing!

If its easy to do with the data I'd love to see the same graph with all rolling 10 year periods over this time frame. Might be difficult to color coordinate 63 different lines.

It isn't that unusual for the market to be up 25% or down 10% in any given year, often the decades can be strongly influenced by what happened near the turn of the decade (example, 2000's would look more muted had the decade started a couple years earlier or later)

 

[audreyh1]

I kind of envision 2000 aligning with 1966, perhaps because that was the start of the prior secular bear market, and also because the 2008 crash timing comes 8 years after the start, similar to the 1974 crash which was also a >45% bear market.

We had some weakness in 2011 as well that we pulled out of by the end of 2012.

If we follow this pattern, we might be flat for a while, but have another rally in 2015 followed by a recession in 2016, before finally exiting the secular bear cycle of 2000.

 

[NW-Bound]

Interesting charts!

One thing most interesting to me is that there have not been two consecutive decades where the market was bad. And now that we have survived the terrible decade of 2000-2010, perhaps this decade of 2010-2020 will be OK?

Still, I am keeping a good chunk of foreign stocks as a hedge.

...
1) 1980's - I really thought that the after-inflation gains were much less. I know inflation was high (I had a high xx% mortgage, fortunately adjustable, so it went down-down-down), so I figured real gains in stocks were low-moderate...

Inflation was running high through the 70s, but peaked up in the 80-81 period. It then quickly collapsed when Volker brought out the silver bullet, by taking the fed rate from 11% in the 70s to 20% in June 1981. Yes, I bought my 1st home in April 1980 too.

The rest of the 80s had much more benign inflation, and the market started to take off in 1983.

 

[Midpack]

A similar, even more useful chart IMO, starting from market lows instead of decade beginnings - also by Lsbcal (the OP on this thread)...thanks again.

http://www.early-retirement.org/forums/f28/how-far-weve-come-now-what-63224.html

 

[Lsbcal]

A similar, even more useful chart IMO, starting from market lows instead of decade beginnings - also by Lsbcal (the OP on this thread)...thanks again.

http://www.early-retirement.org/forums/f28/how-far-weve-come-now-what-63224.html

I will post an update of that chart today. If one wants to start the clock ticking on the start of a bull market, that is perhaps a better chart.

To me the decades chart here is useful because it is easier to eyeball slopes (growth rates) to compare time periods. It is like taking a standard semilog chart, and making it return to 1 at the start of each decade. We could have returned it to 1 at year 3 or whatever, that is the arbitrary part. The way peaks and valleys line up between decades is unimportant.

 

[samclem]

I will post an update of that chart today. If one wants to start the clock ticking on the start of a bull market, that is perhaps a better chart.

To me the decades chart here is useful because it is easier to eyeball slopes (growth rates) to compare time periods.

One advantage of the decades chart vs. the market bottoms chart: We can know in advance when a decade will begin. Not so much with bull markets.

 

[Midpack]

One advantage of the decades chart vs. the market bottoms chart: We can know in advance when a decade will begin. Not so much with bull markets.

Yes, but how do market returns correlate with when a decade begins? Not at all that I'm aware of.

OTOH, you know when we're in a recession and the economic metrics (employment, GDP, etc.) and that a "bull" market will follow - admittedly the timing/duration of recessions and expansions are trickier (insert tongue in cheek smiley here). We know we're almost 4 years into an expansion now with a weak economy (by US historical standards at least), what comes next, who knows...though the charts show no expansion that lasted more than 6 years without some correction.

 

[Lsbcal]

By popular demand , I posted the new SP500 off of market lows chart here: http://www.early-retirement.org/forums/f28/how-far-weve-come-now-what-64404.html#post1265802