It took 14 years for US stocks to recover from the dot-com bubble. What if we started buying in at the high?
2000 was bad. 2008 made it worse. 2014 you're back on your feet, but now 2018 looks like 1998.
But was it really that dire for everyone? Returns for people buying and holding a lump-sum in 2000 were terrible, and it would have been fatal to retire on a portfolio in 2000, but those are subsets of investors.
What if you, like other investors who do not have lump-sums handy, used a savings stream to buy in regular fixed amounts; i.e. dollar-cost-averaging?
Specifically, what if you bought, with as close to $10,000 a year as possible, units matching the S&P 500 from 2000 to 2013?
TLDR:You sink in $132,597 and reap $180,676. It wasn't all last-minute gain either. You would have had brief respite from negative territory between 2004 to 2007.
To compare, if you'd bought-and-held $132,597 in 2000, it would be worth $152,622 in 2013. Not so bad, though a long time underwater. Indeed, lump-sums at market tops not being fatal is the thesis behind the article, 'The World's Worst Market Timer'.
Then again, if I did have $132,597 in 2000, I hope someone would have talked me out of concentrating it in shares. Maybe put it into a house. Oh wait ...
Dollar-cost-averaging may not beat lump-sum in general, but it's easier on the psyche. Still, when faced with losses year after year, it's very hard not to feel like you're sinking in good money after bad.
It may look like we're about to go through hell, but if we do, we won't stay there if we keep going.
**No dividends or inflation taken into account.
2000 was bad. 2008 made it worse. 2014 you're back on your feet, but now 2018 looks like 1998.
But was it really that dire for everyone? Returns for people buying and holding a lump-sum in 2000 were terrible, and it would have been fatal to retire on a portfolio in 2000, but those are subsets of investors.
What if you, like other investors who do not have lump-sums handy, used a savings stream to buy in regular fixed amounts; i.e. dollar-cost-averaging?
Specifically, what if you bought, with as close to $10,000 a year as possible, units matching the S&P 500 from 2000 to 2013?
| Year | S&P500* | Buy Units | Cost | Cost (Cum.) | Value (Cum.) | Profit | Gain** | Billboard #1 Pop Single |
|---|---|---|---|---|---|---|---|---|
| 2000 | 1,427.01 | 7 | -$9,989 | -$9,989 | $9,989 | $0 | 0.00% | Breathe - Faith Hill |
| 2001 | 1,192.08 | 8 | -$9,537 | -$19,526 | $17,881 | -$1,645 | -9.20% | Hanging by a Moment - Lifehouse |
| 2002 | 995.63 | 10 | -$9,956 | -$29,482 | $24,891 | -$4,591 | -18.45% | How You Remind Me - Nickelback |
| 2003 | 963.69 | 10 | -$9,637 | -$39,119 | $33,729 | -$5,390 | -15.98% | In da Club - 50 Cent |
| 2004 | 1,130.55 | 8 | -$9,044 | -$48,163 | $48,614 | $450 | 0.93% | Yeah - Usher |
| 2005 | 1,207.06 | 8 | -$9,656 | -$57,820 | $61,560 | $3,740 | 6.08% | We Belong Together - Mariah Carey |
| 2006 | 1,310.67 | 7 | -$9,175 | -$66,994 | $76,019 | $9,024 | 11.87% | Bad Day - Daniel Powter |
| 2007 | 1,476.63 | 6 | -$8,860 | -$75,854 | $94,505 | $18,650 | 19.73% | Irreplaceable - Beyonce |
| 2008 | 1,220.89 | 8 | -$9,767 | -$85,621 | $87,904 | $2,283 | 2.60% | Low - Flo Rida |
| 2009 | 946.74 | 10 | -$9,467 | -$95,089 | $77,632 | -$17,456 | -22.49% | Boom Boom Pow - B.E.P. |
| 2010 | 1,139.31 | 8 | -$9,114 | -$104,203 | $102,538 | -$1,665 | -1.62% | Tik Tok - Kesha |
| 2011 | 1,268.89 | 7 | -$8,882 | -$113,085 | $123,082 | $9,997 | 8.12% | Rolling in the Deep - Adele |
| 2012 | 1,379.56 | 7 | -$9,657 | -$122,742 | $143,475 | $20,732 | 14.45% | Somebody That I Used to Know - Gotye |
| 2013 | 1,642.51 | 6 | -$9,855 | -$132,597 | $180,676 | $48,079 | 26.61% | Thrift Shop - Macklemore |
TLDR:You sink in $132,597 and reap $180,676. It wasn't all last-minute gain either. You would have had brief respite from negative territory between 2004 to 2007.
To compare, if you'd bought-and-held $132,597 in 2000, it would be worth $152,622 in 2013. Not so bad, though a long time underwater. Indeed, lump-sums at market tops not being fatal is the thesis behind the article, 'The World's Worst Market Timer'.
Then again, if I did have $132,597 in 2000, I hope someone would have talked me out of concentrating it in shares. Maybe put it into a house. Oh wait ...
Dollar-cost-averaging may not beat lump-sum in general, but it's easier on the psyche. Still, when faced with losses year after year, it's very hard not to feel like you're sinking in good money after bad.
It may look like we're about to go through hell, but if we do, we won't stay there if we keep going.
Notes
*Data from R. Shiller. Average over calendar year, which doesn't capture intra-year peaks.**No dividends or inflation taken into account.
Comments
Post a Comment