12 • MARTIN H. RUBY
The Impact of Volatility Imagine you had to save during the worst decade in modern U.S. market history. A market so bad you would, on average, lose money every year. A market that saw not just one but TWO crashes that wiped out more than a third of your savings’ value. We feel for our parents and grandparents who lived through that kind of market with the Great Depression. But here’s a sur- prise: their generation isn’t the only one that had to work and save during one of the worst markets in history. You did, too. The years 2000 through 2009 are estimated to be the single worst decade in S&P 500® history. You might have heard it called the “lost decade of investing,” because the market that decade ended lower than it started. How bad was it? For those number geeks like me, this next sec- tion will be very exciting. If you’re not a numbers person, don’t worry — I’ll explain what all the numbers mean. If you had a 401(k) with $100,000 in it, completely invested in the S&P 500®, what would have happened over the first decade of this century? Well, look at the line on the preceding chart marked, “Annual Total Return of the S&P 500®.” This represents your ac- count value. The market crashes from 2000 to 2002. It takes you four years to earn back what you’ve lost, and finally by 2006, you’re above water. Then, in 2008, you lose it all again. You saw some good years. The market was up 28 percent in 2003 and 26 percent in 2009. But you used those big gains to earn back the money you lost when the market dropped. So those gains
really didn’t reflect forward progress, did they? In fact, it’s even less progress than you think.
Guess what your 401(k) earned, on average, from 2000 through 2009, if it was invested wholly in “the market”? Four percent? Three percent?
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