The stock market has been on a seemingly never ending tear. It’s given people a sense that nothing can go wrong and the market will always go up but there is a precedent for a potential lost decade.
From 2000 to 2009, the S&P 500 (via SPY) returned -39.53% and while after 2009 things lost better, if you were in that lost decade it didn’t feel good to wonder if things would ever get better.
Imagine 2024 is the peak year and the stock market goes onto another lost decade through 2033, are you prepared for that outcome?
How am I planning?
There are a few things you can do but the most important is to simply be aware of what is happening with the economy and markets. The second best thing to do is to diversify investments into bonds, stocks, real estate, precious metals and anything else that is a good fit for your lifestyle such as starting a business or side gig to earn money.
Learning From History
Wikipedia has some great bullet points that led to the lost decade and no two lost decades will ever repeat themselves but it is interesting to see the conditions that led to it. Here are a few key points:
- The Nasdaq, the American Stock Exchange and the New York Stock Exchange closed for six days after the September 11 attacks, the longest close since the Great Depression in 1929.
- The 2000s contained two recessions, according to the U.S. National Bureau of Economic Research.[1] The first occurred from 2001 to 2003, and the second began in December 2007.
- Major downturn in the value of dot-com shares, with occasional exceptions (Google‘s IPO on August 13, 2004). The Internet continues to grow as a business and advertising medium, with steady increases in online shopping and banking activities. Other successful firms include Amazon.com and eBay.
- Enron and other major accounting and corporate governance scandals prompt reviews of corporate government legislation worldwide (e.g., Sarbanes–Oxley Act)
- The 1990s stock market boom ends in mid-March to early September 2000 – 2001.
- Post-9/11 Recession from 2001 to 2002. The Dow Jones average would sink to the 7000 level during July 2002. Continuing stagnation in US and global monthly jobs growth afterwards. A recovery in US GDP growth begins after May 2003, but with continuing weakness on many indicators as of 2006.
- By 2006, the U.S. economy had reached new heights, with the stock market increasing in value, home prices rising, and interest rates curbed. Gas prices lowered out by September 2006, further fueling economic prospects.[2]
- The Dow Jones surpasses 12,000 for the first time in history, in mid-2006, and hits levels above 14,000 in 2007; however levels have dropped to around 8,000.
- In 2006–2007, the United States housing market made a sharp downturn, with home sales falling to levels not seen in a decade. Median home prices began slipping. The effects of the housing downturn on the overall economy are still being determined as of 2007, though by July–August 2007, worries over a “credit crunch” emerged and increasing numbers of economists and CEOs feared the economy would slip into a recession. The gross domestic product in the United States continued slowing in 2007.
- A barrel of oil peaked at $140 in mid-2008, and banks became less willing to lend money to each other. Inflation is already rising across many industrialized countries.
- The American housing market caused difficulty for the two mortgage brokers Fannie Mae and Freddie Mac, which have been subject to fears of collapse.
- Some economists have labeled the decade a “lost decade” because there were “zero economic gains for the typical American family.”[3][4]
A combination of greed, fraud, terrorism, and fraud again caused the lost decade but the next lost decade could easily be caused by fraud, political instability, domestic terrorism, and of course more fraud.
I certainly don’t want that to happen especially since I plan on retiring sometime during the next decade so I’m being prudent in hoping for the best, planning for the worst.