Market figures up to 2017: not as impressive as you think

No one would deny that 2017 was a banner year for the markets… by the end of the year, all stock indices were near their all-time highs. Even the WSMSI (Working Capital Model Selected Revenue Index) had a capital growth number close to 12%.

But, let’s ignore the promotional Wall Street pennants and look at the long-term numbers, say this century so far…

You’ll recall that the period from 1999 to 2009 was dubbed “The Dark Decade” by a Wall Street that simply couldn’t cope with the idea that the “shock market” (collectively) could really regress over such a long period of time.

Did the “bull market” that evolved from the dismal decade really produce the kind of gains you’ve been hearing about?

· From 1999 to 2009, the NASDAQ (the home of “FANG” type companies forever) shrank by 34%. From 1999 to 2017, it was the worst performer of any indices, rising just 71%, or an average of less than 3% compounded, per year. So even the spectacular 160% gain in market value since 2009 has not produced a spectacular long-term return.

· From 1999 to 2009, the S&P 500 (although less speculative than the NASDAQ in general) lost an alarming 39% of its value. With a faster recovery than the NASDAQ, the S&P has gained approximately 94% in market value over the past 18 years, or an average of less than 4% compounded annually. So there’s not much to celebrate in the S&P either…for the long-term investor.

· From 1999 to 2017, DJIA’s highest-quality content suffered less than the other indices during the dismal decade, losing less than 1% per year, on average. But its overall 18-year performance, with market value growth of 115%, averaged less than 5% per year. Reflection of higher quality content, yes, but really not that impressive overall.

So what about a focus on investing for income purposes over the same two time periods?

· From 1999 through 2017, a portfolio of $100,000 closed-end funds (CEFs) of income paying approximately 7% per year, compounded annually, would have increased invested principal to approximately $340,000 by the end of 2017. .. a 240% gain on Equity and almost three times the average long-term gain of the three stock averages!

· During the bleak decade itself, a $100,000 income CEF portfolio paying 7% and compounded annually, would have increased investment capital by approximately 111% (10% per year).

Keep in mind that the average annual gain of about 13% is based on annual rather than monthly reinvestment of earnings… so it would actually be even higher. Hmmm, kind of makes you wonder, doesn’t it?

Now some what if:

· What if you lived on income or portfolio growth anytime before mid-2010?

What if you lived on 4% of the “growth” or “total return” of your portfolio before the end of 1999? How much did he have left when the rally began in 2010?

What happens if we don’t get enough more years of double-digit market growth for equity markets to catch up to the earnings illustration above?

· What if the market does not produce a “total return” greater than your spending needs forever?

What if your portfolio contained enough income securities to cover your expenses, combined with equities of a higher quality than the Dow?

What if the stock market corrects again this year?