Marketplace Scratch Pad

Gold’s the winner, stocks the losers

Scott Jagow Dec 21, 2009

With 10 days to go in the “aughts” decade, it’s pretty much official. This has been the worst calendar decade for the US stock market. Ever. And yes, that includes the Great Depression. If you had your money in gold from the start, then you made a killing.

The bad news for stock investors from the Wall Street Journal:

Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade.

The period has provided a lesson for ordinary Americans who used stocks as their primary way of saving for retirement.

But financial adviser Allan Roth disputes that the decade was as bad as all that. First, it depends on how you measure the “market”:

While the past decade wasn’t great for investors — stock returns were far below the long-term 8.3 percent annual return for equities as calculated by Wharton Professor Jeremy Siegel — it wasn’t a complete disaster. When calculated correctly, U.S. stocks almost broke even, as measured by the Vanguard Total Stock Index Fund (VTSMX). International stocks did much better, increasing 2.3 percent annually (26 percent overall), as shown by the Vanguard Total International Stock Index Fund (VGTSX). And bonds had a downright good decade, increasing 6.2 percent annually or 83 percent over the 10-year period…

But Roth also points out two important reasons why most investors failed to make money:

  • High expenses: On average we pay 2.0 percent annually to our mutual fund managers, brokers, or money managers so they can, ideally, outsmart other professionals and beat the indices.

  • Emotions: We all know that the way to make money in the stock market is to buy low and sell high. But instead, being herd animals, many of us buy when the market is heading up and become panic sellers when the market plunges. Being human costs us another 1.5 percent annually, according to my analysis of the flow of funds from data provided by Morningstar.

Gold was the decade’s winning investment. It was up 15% a year after losing 3% each year of the 90’s.

As an investor, what lesson did you learn this past decade?

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