Lost and found

Headnote

The 'Lost Decade' wasn't as bad as it could have been

The 10-year period from 2000-2009 has been referred to as the "Lost Decade."

During these years, the 10-year average annualized return of the U.S. equity market (as measured by the S&P 500) was -1 percent (-0.95 percent to be exact).

A $10,000 investment on Jan. 1, 2000, was worth $9,089 on Dec. 31, 2009.

To put this performance into perspective, there have been 75 consecutive 10-year periods (rolling decades) since 1926, and the average 10-year average annualized return for the S&P 500 over those 75 periods was 10.8 percent.

Still, the Lost Decade was only lost if you were 100 percent invested in large-cap U.S. stocks. In fact, the last 10-year period was one of only four such periods since 1926 in which the S&P 500 produced a negative average annual return. The other three periods were 1929-1938 (-0.9 percent); 1930-1939 (-0.1 percent); and 1999-2008 (-1.4 percent).

On the other hand, if you were hunkered down in an all-bond portfolio between 2000 and 2009, you had a better-than-average experience. Likewise, if you had a marginally diversified portfolio (such as a blend of 60 percent large U.S. stocks and 40 percent bonds), you emerged at the end of 2009 with a modest gain. In retrospect, the Lost Decade was actually a referendum on the importance of asset allocation and diversification.