2000-2009 may have been "lost decade" for investors but sequel unlikely, UBS says
The decade just completed, 2000-2009, was in many but not all respects a "lost decade" for investors. Baby boomers on the cusp of retirement are understandably nervous that the dismal stock-market returns of the first decade of the 21st century may be repeated in the second decade just begun. Considering that 2010-2019 is likely the last full decade many North American baby boomers will be working full time, the prospect of 20 straight years of dismal returns is a sobering one.
But buck up, fellow "Boomers Formerly Known as Wealthy" [a Twitter list I maintain for boomers who despair of ever retiring]! According to UBS Wealth Management, history shows that lost decades are not usually repeated. Observe the chart above, which shows exactly this in the form of performance of the S&P500. The lost decade of the 1910s was followed by the roaring 20s; the 1930s down decade was followed by a modest rebound in the 1940s and a spectacular rise in the 1950s. A second UBS chart I didn't use shows the 1970s was also a lost decade in terms of the real price return of the S&P 500, but that slump was followed by two great decades for investors: the 1980s and 1990s.
While U.S. stocks languished, emerging markets, small-caps and materials flourished
And while the 2000s were down for the S&P500 — the worst period for U.S. stocks since the 1920s — even during this dismal period some portions of the equity markets generated attractive returns: emerging markets, small-cap stocks, energy and materials stocks among them.
Emerging markets generated a whopping total return of 162% between 2000 and 2009 while the Developed World equity markets outside the U.S. still managed a positive 22% return over the decade. And while the large-caps making up the S&P500 were down 9% over the decade and the Russell 3000 was just shy of breaking even at minus 2%, U.S. small caps were up 41% and U.S. mid caps were up 63%.
Apart from stocks, bonds and commodities did well in 2000-2009
Furthermore, once you scrutinize the investing universe outside of equities, the "lost decade" was actually a good one for bonds and commodities. In U.S. dollars, commodities generated a total return of 99% between 2000 and 2009. U.S. fixed income was up 85%, non U.S. fixed income up 87% and Cash was up 38%.
Even among global equities, returns varied by sector. The two hardest hit sectors from 2000 to 2009 were technology and telecom, down roughly 50% over the decade, which should be an object lesson for those investors who jumped on the TMT [Technology/Media/Telecom] bandwagon in 1999. Consumer discretionary stocks were down slightly and financial stocks more or less broke even. But many other sectors were strongly in the plus column: energy most so — well over 100% — followed by Materials, Utilities, Consumer Staples, Health Care and Industrials.
Bottom line: 2010-2019 unlikely to be second consecutive "lost decade."
The bottom line according to UBS? "We believe the next decade is much less likely to be lost for equity markets. In sharp contrast with early 2000, when equity markets were massively overvalued, current valuations are in line with long-term averages."
You may be able to get a copy of the report by requesting it via this UBS web site.
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Source The Wealthy Boomer : Retirement
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