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Investing: Is It Different This Time?


The 2008 global market crisis and the struggling economy have left many investors fatigued. Despite two years of strong equity returns, some investors have been slow to regain market confidence. Many are accepting the talk about a “new normal” in which stocks offer lower returns in the future. The concept of a new normal is anything but new. In fact, throughout history, periods of economic upheaval and market volatility have led people to assume that life had somehow changed and that new economic rules or an expanding government would limit growth. Let’s look at a couple periods when investors had strong reasons to give up on stocks—and consider the parallels to today.


1932: The US stock market had just experienced four consecutive years of negative returns. A 1929 dollar invested in stocks was worth only 31 cents by the end of 1932. Hopes were sinking during the Great Depression, and many people felt as though the economy had permanently changed. Many investors left the market, and some would not return for a generation. Amidst what is considered the roughest economic time in US history, the markets looked ahead to recovery.

US Stock Market Performance after 1932*

5 Years 10 Years

20 Years

Annualized Return




Growth of $1

$ 2.04

$ 2.61

$ 11.92


1974: Investors had just experienced the worst two-year market decline since the early 1930s, and the economy was entering its second year of recession. The Middle East war had triggered the Arab oil embargo of late 1973, which drove crude oil prices to record levels and resulted in price controls and gas lines. Consumers feared that other shortages would develop. President Nixon had resigned from office in August over the Watergate scandal. Annual inflation in 1974 averaged 11%, and with mortgage rates at 10%, the housing market was experiencing its worst slump in decades. With prices and unemployment rising, consumer confidence was weak and many economists were predicting another depression.


US Stock Market Performance after 1974*

5 Years 10 Years

20 Years

Annualized Return




Growth of $1

$ 2.22

$ 4.38

$ 16.07

Today: Despite two years of strong market returns, memories of the 2008 bear market and talk of the “lost decade” have led many investors to question stocks as a long-term investment. But earlier generations of investors faced similar worries—and today’s headlines echo the past with stories about government spending, surging inflation, deflationary threats, rising oil prices, economic stagnation, high unemployment and market volatility.


Of course, no one knows what the future holds, which brings the concept of “normal” into question. What exactly is the status quo in the markets? Since 1926, there have been only four periods when the stock market had two or more consecutive years of negative returns. In addition, market returns are rarely in line with the market’s 9.67% long-term average (annualized). The most obvious normal may be that, over time, stocks offer expected returns reflecting the uncertainty and risk that investors must bear.


And really, what’s new about that? When you take a long, hard look, the "new" normal starts to seem an awful lot like the normal we've known all along.
*   Returns for all periods of the CRSP 1-10 Index are annualized. Data provided by the Center for Research in Securities Prices, University of Chicago.

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