Where’s my 7 percent a year? A stock market lament
Right after I moved to California, I bought a sliver of the Vanguard Growth Index Fund for $33.66 a share and invested it for “the long haul” in a 401(k) rollover account. If stocks had returned their alleged 7 percent a year, shares of the fund should be trading for about $60 a share (compounded). Today, nine years and a couple weeks later, VIGRX closed at $23.20, well under half of what it “should” have earned and, most painfully for yours truly, 31 percent below what I paid for it.
I reshuffled after the tech stock crash and had a little bit of luck: after the worst week in Wall Street history, my fund balance in that 401(k) rollover is only down 19 percent — after nine years. In 2004 I launched a cautious, sensible plan to dollar-cost average that account back to health. The credit bubble that energized the most recent bull move got me back to even last fall; even after moving a third of my stake to cash last fall, I lost all the gains of four patient, sensible, diversified years in six weeks. I tried buying back into my stock funds when there was blood on the streets; in seven days the market dived another 20 percent (making half of it back on Monday, fortunately).
Of course it’s unfair to gripe about stocks’ returns after a panic sell-off of epic proportions. Everybody’s portfolio stinks at times like these; it’ll sweeten when the fear turns to greed, as it inevitably does.
What gripes me is that I never did anything greedy; I never bought individual stocks on margin, I never dived into options or futures or currencies, I stayed with sensible mutual funds from a sensible fund family. Buying and holding a single fund, as illustrated above, would have cost me a third of my stake; reshuffling cut my losses to a fifth.
I guess I should be grateful: I’ve lived through two market crashes in eight years and I’m still sitting on 80 cents on the dollar. Many have been wiped out.
Melissa and I call experiences like this “tuition”: the cost of learning how the world works. Over the years I’ve gotten richer in experience, but I’d like to be getting richer in the ol’ rollover account.
One thing I have figured out for absolute certain: The only way to make your account balance rise is to put more into it than you take out. Everything else is casino winnings.
October 14th, 2008 at 4:18 am
I am happy that I chose to invest in farm tools and fields.
Isn’t there a saying…
You can give a man interest on his investment to buy food, but teach a man to grow food and he can… you can’t fool me again.
October 15th, 2008 at 10:49 pm
I think we’ve all gotten caught up so much in the idea that “just” saving money in a bank account, instead of putting money in the stock market, was just as bad if not worse than spending it all on bon-bons and champagne. Yes, we need compounded interest at 7 percent to overcome the effect of inflation. But I think we came to rely on that magical compounding too much, and forgot that sometimes, having money for emergencies or retirement means simply biting the bullet and socking away actual cash. And that it often means doing so to a degree that makes life somewhat more unpleasant today (by giving up things we like, sometimes even things that really aren’t extravagances) for a secure future.