Worried It’s a Bad Time to Invest? Let’s Talk About “Lost Decades”
Hi everyone, John here. One of the biggest fears I hear from new investors is, “What if I invest my money right before the market crashes?” It’s a totally valid concern. Nobody wants to see their hard-earned savings go down right after they’ve put it to work. This fear often leads to a bigger question: What if we’re heading into a “lost decade” for stocks?
It sounds scary, right? But today, we’re going to break down what that actually means and look at what happens if you do start investing at what might seem like the worst possible time. You might be surprised by the results.
Lila, my assistant, is here with me. She’s also new to this, so she’ll be asking the questions many of you might have.
Lila: Hi John! I’m definitely a little nervous about this topic. What exactly is a “lost decade”? It sounds terrible.
John: That’s a great place to start, Lila. A “lost decade” is simply a 10-year period where the stock market, as a whole, gives you pretty disappointing returns, maybe even ending up lower than where it started. The most recent example everyone points to is the 2000s.
A Real-Life “Lost Decade”: The 2000s
Let’s travel back in time. From the start of 2000 to the end of 2009, the U.S. stock market had a rough ride. It was hit by two major downturns: the dot-com bust at the beginning of the decade and the 2008 financial crisis near the end.
If you look at the total return of the S&P 500 during that time, it was actually negative. You would have lost about 9% of your money over 10 years. That’s the classic definition of a lost decade.
Lila: Whoa, hold on. What’s the S&P 500?
John: Excellent question! Think of the S&P 500 as a giant shopping basket that holds stocks from the 500 largest and most important companies in the United States. When you invest in an S&P 500 index fund, you’re buying a tiny piece of all those companies at once. It’s a common way to measure how the overall U.S. stock market is doing.
The “Worst Case” Scenario: Investing at the Very Start of a Lost Decade
So, what would have happened if you had terrible luck and invested a lump sum of money right at the peak of the market in early 2000, just before this lost decade began? Let’s imagine you invested $10,000.
Here’s how it would have played out, based on the data:
- After 10 years (by the end of 2009): Your $10,000 would have shrunk to about $9,100. This is the part that scares everyone. You waited a whole decade and actually lost money! It would be very tempting to give up at this point.
- But what if you held on? Let’s see what happened next.
- After 15 years (by the end of 2014): Your investment would have grown to more than $20,000. You more than doubled your initial money!
- After 20 years (by the end of 2019): It would have been worth nearly $35,000.
- As of mid-2024 (about 24.5 years later): That initial $10,000, invested at the “worst” possible time, would have turned into more than $60,000.
Even though the first 10 years were a complete bust, the power of staying invested for the long run completely turned the story around. The returns you got in the following years more than made up for that initial lost decade.
What About Just Keeping Your Money in Cash?
Seeing those numbers, some people might think, “Well, if I had just kept my $10,000 in cash, at least I wouldn’t have lost anything in those first 10 years.” That’s true, but it misses a hidden danger: inflation.
Lila: What’s inflation, John? I hear that word on the news all the time.
John: Inflation is just a simple way of saying that, over time, your money buys less stuff than it used to. Think about how a movie ticket or a gallon of milk cost much less 20 years ago than it does today. That’s inflation at work. It slowly eats away at the value of your cash.
So, let’s look at that $10,000 in cash. Because of inflation, that cash would have lost a huge chunk of its buying power over those same 24.5 years. While the invested money grew to over $60,000, the cash was still just $10,000—and a much weaker $10,000 at that. In the end, investing, even at a “bad” time, was a far, far better choice than holding cash.
A Different Strategy: Investing a Little Bit at a Time
Okay, so most people don’t invest a giant lump sum all at once. What if you invested smaller amounts regularly? This is a strategy called dollar-cost averaging.
Lila: Dollar-cost what? That sounds complicated.
John: It sounds technical, but the idea is super simple! Dollar-cost averaging just means investing a fixed amount of money on a regular schedule, like $100 every month, no matter what the market is doing. When the market is down, your $100 buys more shares. When it’s up, it buys fewer. It smooths out your journey.
Let’s see what would have happened if you used this strategy during that same lost decade. Imagine you invested $100 every single month into the S&P 500, starting in January 2000.
- Total Invested: Over 24.5 years, you would have invested a total of $29,500 ($100 each month).
- Value of Your Investment: By mid-2024, that investment would have grown to more than $106,000!
Think about that. By patiently investing a small amount every month, you actually benefited from the downturns. Those periods when the market was low allowed you to buy shares “on sale,” which paid off massively in the long run.
So, When IS the Best Time to Invest?
After looking at all this, the answer becomes much clearer. We can’t predict when a lost decade will happen. We can’t predict when the market will go up or down. Trying to perfectly “time the market” is nearly impossible.
The data shows that even if you have the worst timing imaginable, the most powerful tool on your side is time itself. The longer you stay invested, the more time your money has to grow and recover from any downturns.
Therefore, the best time to invest was yesterday. The second-best time? It’s whenever you have the money you can afford to set aside for the long term.
A Few Final Thoughts
John’s View: For me, this is a powerful lesson in patience and perspective. It’s so easy to get caught up in scary headlines and daily market movements. But this data confirms that a simple, long-term plan is often the most effective. Your future self will likely thank you for getting started, even if the timing doesn’t feel “perfect.”
Lila’s View: Honestly, I feel a lot less anxious now. Seeing that even a “lost decade” isn’t a total disaster in the long run is a huge relief. The idea of investing a little bit each month makes it feel much more manageable and less like a giant, scary gamble.
This article is based on the following original source, summarized from the author’s perspective:
The Best Time to Invest