Lost Decade for the Stock Market

Jun 13th, 2011 by admin in Must Read, Stock Market

The S&P 500 Index is a weighted index based on 500 large-cap US companies and is frequently used to measure stock market performance.

In 2000, I decided to invest $20,000 in the Vanguard S&P 500 Index mutual fund with approximately 10 year horizon. It seemed like a reasonable approach. Many financial experts recommended using the index funds versus the actively managed funds. Vanguard is known for its low expenses fees. Really, it seemed I can’t go wrong here.

Fast forward to January, 2010. After two severe market corrections in 2002 and 2008, I sold my shares in the Vanguard S&P 500 Index fund at a loss of $2,767. This was painful! What went wrong?

In one of her shows, Suze Orman mentioned that we are currently in a secular Bear Market that started in the year 2000. That is when I learned that there are secular Bear and Bull stock market cycles. In the 80s and the 90’s we were in a great Bull market that lasted 18 years. In a secular Bull market, the general stock market tends to go up. In a secular Bear market, the general stock market tends to go down. You can find year by year summary of secular Bear and Bull markets at http://www.crestmontresearch.com/docs/Stock-Secular-Chart.pdf. The previous secular bear market lasted 16 years. The current secular market started in 2000 and is projected to last at least another 5 years.

My lesson learned is that while frequently recommended Buy and Hold strategy worked well in the secular Bull market in the 80’s and 90’s, it is not as simple during the secular Bear market that we are currently in. Certainly, it didn’t work for my 10 year investment. In hindsight, I would have been better putting that money in a 5 year CD. I believe now that more active management is needed during the secular bear market. It does require more effort and more education but is a possible option.

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