How bad was the last decade for your investment in stocks?

As was mentioned in our December 4th posting: A well-known business magazine recently published a story with this headline:

Stocks: The "Loss" Decade
A disastrous ten years for the stock market ends in just a month. Will the turning of a new decade change investors' luck?

One sentence from the story itself tells you most of what you need to know: "The ten years since Y2K are on track to produce the worst total returns for investors since the 1930s."

Yet, many investors don't realize quite how bad the decade was because most forget about the effects of inflation on their stock market investments....while their stockbrokers continued to sing the praises of maintaining a long-term stock market investment strategy.

Despite the 2009 rebound, the Dow Jones Industrial Average today stand at just 10,520, no higher than in 1999.  And that is without counting consumer-price inflation.  In 1999 dollars, the Dow is only at about 8,200 and would have to rise another 28% or so to return to 1999 levels.  Using today's dollars and starting at 10,520, the Dow would have to surpass 13,460 to get back to its 1999 level in real, inflation-adjusted terms.

Your stockbroker may note that the Dow today is worth 27 times its value at its 1929 pre-crash peak, meaning that even if you bought at the worst moment, your stock still would be way up over time.  In inflation-adjusted terms, however, the Dow today is only a little over twice its 1929 peak, according to Ned Davis Research.

The bottom line for investors is (even though your stockbroker or financial advisor won't tell you) "when in doubt, get out."  By converting your stock holdings to cash when the stock market tops off, you'll have cash reserves to buy at deflated prices when the market bottoms out.  Yes, Virginia, there are business and economic cycles.

Source: The Wall Street Journal, December 28, 2009