Chapter 3: Turbulent Times for a New Century

Andy Horner  •  11/22/2014  •  Feature Presentation

Video Transcript

From 1982 to 2000, the S&P 500® experienced a consistent upward growth with no major declines in the Markets. As they crossed the threshold of the new millennium, the Baby-Boomers were a decade away from waltzing into the comforts of retirement as the wealthiest generation in American history.

This chart represents almost 18 years in the S&P 500® Index from August, 1982 through March, 2000. 93% of the Index total return performance up to that point occurred during this period, which averaged a little over 16% per year.

For that period of time, you didn’t have to be an investment professional to be successful, you just had to ride the Market as it trended up. The bases were loaded for the Baby Boomers to exit the final inning of their careers with what looked like a game they couldn’t lose. Little did they know, however, that the new millennium had a curve ball up its sleeve that the Boomers hadn’t faced before.

After its peak in 2000, The Market was rocked with two of the greatest declines ever. Look at the red zones where the Market tumbled: a -49% and a -56% drop. Adjusting for inflation, the S&P 500® exited the first decade of the new millennium with more than a -10% loss. After the peak of the stock market in early 2000, many investors were riding a roller-coaster without a harness.

Now look at the green zones. Notice that they show over 100% increase after each drop. All that was lost was regained, right? Not so fast. Though the stock market has seen all-time highs lately – the money lost in the turbulence since 2000 has not returned to investors pockets like you may expect.  The S&P 500® is still less than where it was in the late 1990’s, when adjusting for inflation.

Why is it so hard to regain your money after experiencing periods of loss?

Small losses, like the dips experienced between 1982 and 2000, are regained more easily. A 10% loss can be regained with an 11% gain.

But the more you lose, the more you have to gain to get back to even. If you lose half of $10,000, what percent gain does it get back even? A 50% gain only gets you back to $7,500. It takes a staggering 100% gain to recoup a 50% loss. Notice how the scale to regain losses increases the more you lose. These are the kind of losses investors have endured since 2000, that ravaged earnings, derailed retirement funds, and stole countless dreams.

(Sources included in the video above.)