Bear markets are Darwinian: They kill weak investors, but the strong get rich.
And as we are learning anew in this decade, bear markets can be both grueling and extremely, extremely long. For the U.S. stock market, the 1960s and 1970s were Lost Decades, and the current one is about as bad. The major indexes, in fact, have been trading lately well below their levels of 10 years ago.
These Lost Decades include monster bear markets -- those of 1973-74, 2000-02 and 2007-present -- during which the S&P 500 Index ($INX) plunged more than 40% each time. Those are the only such monsters since the Great Depression, and two of them have come in this decade.
And the immediate future, at least, looks even more perilous. When the S&P 500 was at its low of 855 on Friday, it was 45.8% below its peak of October 2007, and foreign markets have recently been battered even worse than our own. The headlines have described a "global panic."
The good news: Some investors have managed to prosper despite those obstacles. In fact, even in the dismal market of the past 10 years, you could have done well with some smart investing choices.
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Can't afford to stop
This is the magic that compounding brings to investing over time, and it's why I worry when I hear people suggest they might stop investing or even stop saving altogether. Today's market is certainly discouraging. But you can make up for market losses much more easily than you can for lost time.
The younger you are today, the greater the rewards that lie ahead -- but only if you persevere.
If you quit, all the money you might make when the market recovers is going to flow to the people who were stronger than you.
If you are older, compounding doesn't work as hard in your favor, but raising contributions can.
Let's say that instead of holding contributions steady this entire period at $1,000 a year, you increased them, both because your income was going up and because you knew you had less time to save. Say you boosted contributions 5% a year. In 1975, you were chipping in $2,000 annually. By 1983 it was $3,000. By 2000 it was $7,000 a year.
These aren't millionaire-size contributions, but you end up with a millionaire's outcome: The kitty at the end of 2007 is $1,008,858, as the chart below shows.
http://articles.moneycentral.msn.com/Investing/MutualFunds/make-money-when-stocks-stink.aspx
So forget about the naysayers. They won't be sending you checks in retirement. The more money you invest and the more intelligently you invest it, the better off you will be, whatever the market does to you over the next decade and on into retirement.
