If you’re saving and investing, it’s probably for a reason. For most people that means saving for retirement. And that requires a long time horizon and a great deal of discipline. It also leads to a great deal of uncertainty, as the 30-40 years or more of saving and investing will almost necessarily mean that investors will have to face at least two or more recessions.
While it can be tempting to think that you can just put your money into stocks and hold onto them for long-term average gains of 7-8% or more, the reality is that you’re going to face numerous ups and downs in your investing returns. If you have the foresight to see those downturns coming and protect your investments accordingly, you’ll do better than those who blindly keep their money in stock markets.
Stock Market Performance Over the Past 20 Years
Just looking at the history of the Dow Jones, we can see that the index reached an all-time high of over 11,700 points at the beginning of 2000, but the bursting of the dotcom bubble sent markets well lower. It took over six years before the Dow regained those highs. That’s six years of basically zero growth. If you had been investing for years before 2000, you would have spent six years waiting, hoping for some growth to your retirement assets, to no avail.
The next bull market run was stunningly short, with markets topping out a year later in October 2007 at just over 14,100 points. From there markets fell precipitously over the next year and a half, bottoming out under 6,500 points. That was a decrease of about 55% from their high in 2007, and a decrease of 45% from their high in 2000. So again, if you had been investing in