No one would deny that 2017 was a banner year for the markets … by the end of the year, all stock indexes were close to their all-time highs. Even the WSMSI (Working Capital Model Select Income Index) showed capital growth approaching 12%.
But let’s review Wall Street’s promotional pennants and take a look at the long-term numbers, say this century so far …
You will recall that the period from 1999 to 2009 was dubbed “The Gloomy Decade” by a Wall Street who just couldn’t cope with the idea that the “shock market” (collectively) might in fact retreat on. such a long period of time.
Has the “bull market” that has evolved since the sad decade really produced the kind of gains you’ve heard about?
· From 1999 to 2009, the NASDAQ (headquarters of companies of the type “FANG” since always) decreased by 34%. From 1999 to 2017, it was the worst performing of all indexes, growing only 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 spectacular long-term performance.
· From 1999 to 2009, the S&P 500 (although less speculative than the NASDAQ as a whole) lost a staggering 39% of its value. Recovering faster than the NASDAQ, the S&P has gained about 94% in market value over the past 18 years, an average of less than 4% compounded annually. So not much to celebrate in the S&P either … for the long-term investor.
From 1999 to 2017, premium DJIA content suffered less than other indexes over the dark decade, losing an average of less than 1% per year. But its overall performance over 18 years of 115% market value growth averaged less than 5% per year. Reflecting better quality content, yes, but really not that impressive overall.
So what about an approach to investing that focuses on income in the same two time periods?
From 1999 to 2017, a $ 100,000 closed income fund (CEF) portfolio paying approximately 7% per annum, compounded annually, would have brought the invested capital to approximately $ 340,000 by the end of 2017 … a 240% gain in Labor Capital, and nearly three times the long-term average gain of the three stock averages!
· During the sad decade itself, a $ 100,000 CEF portfolio at 7% income, compounded annually, would have increased private equity by approximately 111% (10% annually).
· Note that the average annual gain of around 13% is based on annual reinvestment rather than monthly earnings … so it would be even higher. Hmmm, kinda makes you wonder, doesn’t it?
Now a few if:
· What if you were living off your income or portfolio growth anytime before mid-2010?
· What if you lived on 4% of the “growth” or “total return” of your portfolio by the end of 1999, how much did you have left when the rally started in 2010?
· What if we don’t get enough years of double-digit market growth for the stock markets to catch up with the above earnings?
· What if the market does not produce a “total return” that exceeds your spending needs forever?
· What if your portfolio contained enough income-oriented securities to cover your expenses, combined with higher quality equity securities than those contained in the Dow Jones?
· What if the stock market corrects again this year?