Another Victory for the Long-Term

Jordan Cole, CFP® |

One of the key investing principles at Sage Advisors has always been: if you are investing for the long-term, you need to keep a long-term perspective. If you’ve been a client for a while, you’ve probably heard us say this many, many times. The reason we continually harp on this point is that the number one reason investors fail to reach their long-term goals is an inability to stay focused on those goals amidst short-term volatility. In the chaos of a financial meltdown, it’s very easy to believe that this time is different; this time the sky really is falling, and it’s time to abandon the long-term goals and run for the safety of cash or gold. However, if you are investing for retirement that may be years away and want your money to last for decades after you retire, it makes much more sense to measure results in decades rather than quarters.

We’ve been thinking a lot about this recently as this October marked an anniversary of sorts for U.S. stock markets. Exactly 10 years ago, on October 9th, 2007, U.S. stock markets hit their highest point before the great financial crisis hit, causing a meltdown of greater magnitude than anything investors had seen since the Great Depression. These were dark times for investors, and it was tough to see when the crisis would end or how far markets would fall. Now, though, with the benefit of time and hindsight, we can look back over the past decade and see how abnormal it has or hasn’t been.

While no one would argue that the greatest financial meltdown since the depression was fun or normal, as a whole, the decade turned out to be decidedly average. If you had invested in an S&P 500 Index fund on October 9th, 2007 and held it over the next decade, you would have an average real return of 5.6%. That’s 5.6% per year above inflation in a decade that saw one of the most extraordinary market collapses in modern times! Now, you might ask, how does that stack up against the long-term averages for U.S. stocks? Jeremy Siegel, a Wharton finance professor, has estimated that the average real return for stocks in the U.S. over the past 200 years is 6.5%. So, while we marginally underperformed a typical decade, most investors would happily accept that result considering how bleak things looked in the early years of the decade.

In the end, we appreciate the trust you’ve shown in us over the past tumultuous decade. We know at times it’s been difficult, but we’ve enjoyed the ride and look forward to partnering with you in the decades ahead.