We’re in a dreaded sideways market. Drifting without drama, except that I can hear the faint hiss of a leak as the Slow & Steady portfolio deflates 0.33% this quarter.
If it wasn’t for having to write this update, I admit I’d be executing Operation See-No-Evil. Not even looking at the market for months, maybe years, until this glum period passes.
Passive investing is the name of the game – and it does not encourage actively urging on your portfolio from the sidelines like Ted Lasso shouting impotently at his struggling team.
Still, check-in I must.
Almost inevitably we can see it is government bonds – and property – that are holding us back this quarter:
The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,200 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts tucked away in the Monevator vaults.
The Slow & Steady’s overall return after almost 13-years is 5.9% annualised. Let’s call that 3% after inflation.
Respectable, but I can’t help but wonder how many of us won’t go absolutely loopy if our portfolios continue to spin their wheels for the next several years.
How likely is that? How long will we have to wait for the gloom to lift?
Let’s see how many lost decades UK investors have endured down the years.
Most people’s investing fate will be dominated by their equities, not bonds. And the good news is there are few decades when stocks actually go backwards. The even better news is that the follow-on decade is often spectacular.
The table below shows the lost decades that beset World equities, the rebound that followed, plus the year the portfolio turned positive again. (See the ‘Back in the black’ column).
Note: returns are real annualised total returns. In other words, they show the average annual return (accounting for gains and losses), are inflation-adjusted, and include the impact of dividends.
World equities: lost decades since 1970
World equities have suffered two lost decades in the past half century:
The stagflationary ’70s were not an era for checking your stocks six times a day. Six times in the entire decade would have been too much.
But look at the 11% annualised return over the next ten years! That’s more than double the historical average of 5%. If you avoided self-destruction during the wilderness years then you were richly rewarded during the go-go 1980s.
Quite a few Monevator readers will have made their investing debuts during the next lost decade, which followed the Dotcom mania of the late ’90s. I remember colleagues frothing down the pub about their newfound riches and how “the Internet has changed everything”.
It had and it felt like it was raining money.
Then the rains failed.
Looking back the annualised returns from 1999 to 2008 weren’t dreadful. The Noughties were a decent decade. But they were spit-roasted by the Dotcom Bust and the Global Financial Crisis (GFC).
Thankfully confidence was restored by a V-shaped recovery from 2009. The 8.5% annualised returns scooped up over the next ten years helped establish DIY investing as online platforms proliferated.
It may be a tougher sell now though, as a portion of those gains were probably borrowed from the future via high valuations. Such frothiness may have to be paid for by several mediocre years to come.
UK equities: lost decades since 1825
What about shares here in Blighty? UK equities have only posted four lost decades in two centuries:
UK equities didn’t suffer a single lost decade from 1825 to 1907. Those really were the good old days.
Even with the first entry in our table, 1907 to 1914 was actually a raging bull market until World War One derailed everything.
The following ten years were sub-par, but not terrible when you consider the Spanish Flu pandemic that killed millions and the economic depression that settled across Britain and the rest of Europe.
World War 2 is a real eye-opener, given the scale of real-world destruction. The market recovered quickly as post-war inflation dissipated. Returns from 1953 to 1962 are the best of those following the entries in our Lost Decade tables.
So don’t feel despondent dear reader. Clearly things have been much worse for some of our investing forebears. We’re far from lost decade territory right now.
In truth, lost decades are not that common, but long stretches of down years are. They’re not a sign that anything is broken. They may well herald that the best years in your particular investing lifetime are yet to come.
Looking at stock market returns through this lens reminds me investing is a long-term game – and that it can feel even longer!
It can take many years of grinding before we enjoy the hoped-for rewards.
Every quarter we blow £1,200 onto the market dice and hope to roll a six. Our stake is split between seven funds according to our predetermined asset allocation.
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