Decent Decade for Indexers

It’s not just the end of a year, but the end of a decade so it’s a particularly appropriate time to consider where we are, where we’re going, and what we’ve learned.

If they’ve done nothing else, the last ten years have proven that investing is hard. Perhaps more importantly, we’ve seen once again that discipline trumps inspiration when it comes to investing. Jason Zweig’s The Wall Street Journal column,The Intelligent Investor, from January 9th provides thoughtful commentary regarding index investing and we loved their quote taken from Professor Meir Statman of the Santa Clara University: “the market may be crazy, but that doesn’t make you a psychiatrist.”’s Richard Ferri offered a more positive look back on the past decade in his piece entitled A Decent Decade for Index Investors published last week. Ferri reviewed the decade in the context of a modern, allocated portfolio and concludes “a diversified and disciplined index investor weathered the past decade just fine.”

The news for the non-indexer out there is not so rosy. Dalbar, Inc. recently issued its updated Summary of Investment Returns. We look for this report every year and found little change. For the 20 year period 1989-2008 the S&P 500 grew at a compounded annual rate of 8.35%; US CPI Inflation rose 2.89% during that period. And the average investor in US Equity mutual funds? Returns averaged only 1.87%. As we say, investing is hard.
Go here to see the WSJ article.
Go here to see the article.