Looking Back at the Market: The “Double-Digit Decades”
Hi everyone, John here! Today, I want to talk about something that can feel a bit intimidating: the stock market. When we see the news, it’s often about big daily swings, and it can be hard to know what to make of it all. But what if we zoomed out? Instead of looking at the market day-by-day, what if we looked at it decade-by-decade? That’s exactly what a fascinating article I just read did, and I want to share its simple but powerful message with you.
Think of it like looking through old family photo albums. The 80s album has a certain look, the 90s a different one, and so on. Each decade tells a story. The stock market is kind of the same, and understanding these “stories” can make investing feel a lot less scary.
First Things First: What is the S&P 500?
The article focuses on something called the S&P 500. Before we go any further, let’s break that down.
Lila: “Hold on, John. ‘S&P 500’ already sounds like a technical term I’m supposed to know. What exactly is it?”
That’s a great question, Lila! Imagine you wanted to know how healthy the biggest trees in a giant forest are. Instead of checking every single tree, you might pick the 500 largest and strongest ones and see how they’re doing. Their health would give you a pretty good idea of the health of the whole forest, right?
The S&P 500 is just like that, but for the U.S. stock market. It’s a list, or an “index,” of 500 of the largest and most successful companies in the United States. We’re talking about names you know, like Apple, Microsoft, Amazon, and Google. When you hear financial news reporters say “the market is up today,” they are very often talking about the S&P 500. It’s used as a general report card for how the U.S. economy is doing.
The Good Times: A Tale of Two Amazing Decades
Now, let’s get to the fun part. The article I read called these periods the “Double-Digit Decades” for a reason. It highlighted two specific decades where investors saw fantastic results: the 1980s and the 1990s.
During the 1980s, the stock market (as measured by the S&P 500) delivered an average return of around 17% per year. Then, in the 1990s, it did even better, with an average of over 18% per year! That’s incredible growth.
Lila: “Okay, ‘average return per year’… is that the same as an ‘annualized return’? I think I’ve heard that phrase before.”
Exactly, Lila! You’re catching on fast. “Annualized return” is just the fancy way of saying it. It smooths out all the bumps. In reality, the market didn’t go up by exactly 17% every single year in the 80s. Some years it went up more, some years less, and some years it might have even gone down a bit. The annualized return just gives you the average yearly result over that entire 10-year period. Getting a double-digit number (like 17% or 18%) on average for ten years straight is a really big deal for investors.
A Reality Check: The “Lost Decade” of the 2000s
After seeing those amazing numbers from the 80s and 90s, you might think the stock market is a one-way ticket to wealth. But the article makes a very important point: it’s not always a smooth ride. The next decade, the 2000s, was a completely different story.
This period is often called the “lost decade” for investors. Why? Because it was hit by two major market crashes:
- The Dot-Com Bubble Burst (early 2000s): A lot of internet-based companies that had been valued very highly suddenly lost most of their value.
- The Global Financial Crisis (2008): This was a huge worldwide economic crisis triggered by problems in the housing market.
Because of these two major downturns, if you had invested in the S&P 500 at the very start of 2000, by the end of 2009 you would have… actually lost a little bit of money. The average annual return for the entire decade was about -1%. It was a tough, frustrating time for anyone who had their money in the market.
The Comeback Story: The 2010s
So, the 80s and 90s were great, and the 2000s were terrible. End of story? Not at all! This is where the lesson about patience really shines through.
Following the difficult 2000s, the next decade told a story of recovery and strength. The 2010s were another “Double-Digit Decade”! The S&P 500 bounced back in a huge way, delivering an average annualized return of over 13%. Anyone who got scared and sold all their investments during the 2008 crisis would have missed out on this fantastic recovery.
Let’s summarize this rollercoaster ride:
- The 1980s: Fantastic! (Average return over 17%)
- The 1990s: Even better! (Average return over 18%)
- The 2000s: A tough time. (Average return around -1%)
- The 2010s: A great comeback! (Average return over 13%)
So, What’s the Big Takeaway for a Beginner?
Reading about these decades teaches us a few simple but crucial lessons about investing:
- The Long-Term View is Key: Looking at the market day-to-day is like watching a single frame of a movie. It doesn’t tell you the whole story. By zooming out to see entire decades, we see a clear trend: despite scary downturns, the market has a history of recovering and continuing to grow over the long run.
- Bad Times Don’t Last Forever: The 2000s felt awful for investors. But they were followed by the 2010s, which were fantastic. The most important thing is not to panic when things look bleak. Selling in a panic often means you lock in your losses and miss the best recovery days that follow.
- Patience is Your Superpower: The people who did best were the ones who simply stayed the course. They kept their money invested through the good decades and the bad ones. It’s a bit like riding a roller coaster. If you jump off during a dip, you’ll never get to experience the thrill of the next climb.
Our Final Thoughts
John: For me, this is a powerful reminder to tune out the daily noise. The financial news loves to focus on fear and panic, but history shows that resilience and patience are what truly build wealth. Seeing these decade-long patterns reinforces my belief that a steady, long-term approach is almost always the right one.
Lila: I have to admit, this makes me feel so much better! I usually just hear about the “crashes” and get nervous. But seeing that an entire “lost decade” was followed by such a strong recovery makes the whole idea of investing feel less like gambling and more like planting a tree. It might face some bad weather, but over many years, it’s likely to grow tall.
This article is based on the following original source, summarized from the author’s perspective:
The Double-Digit Decades