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8(%) Is Enough
by Charles B. Carlson, CFA
Dow Theory Forecasts

Here's a question for you: How many times did the market (as measured by the S&P 500 index) decline in the 18-year period from 1982 through 1999?

Five? 10? Seven?

How about just once.

That's right. Only one time in that 18-year period did the S&P 500 decline. That was 1990, and the decline was a scant 3%.

Thus, when I read that the market may show only modest to moderate gains over the next several years, I don't disagree. Of course, I could be wrong. Heck, I hope I'm wrong. I would love to see the 18%-20% annual gains in the market that we saw in the 1980s and the 1990s. But I don't expect to see them for the simple reason that it will take some time for the market to work off the excesses created by that phenomenal 18-year run. True, we worked off some of those excesses in 2000 and 2001. But it seems too easy to me that we have 18 great years, two bad ones, and it's off to the races again. That's why I wouldn't be surprised to see annual gains over the next decade averaging 5%-8%.

Now, does that mean you should go out and sell your stocks? Of course not. Even at 5%-8% per year, stocks will still be the best game in town, certainly better than fixed-income investments.

And remember - even at just 8% a year, your money doubles every nine years. That may not sound like much, but you can still build decent wealth doubling your money every nine years. Do the math - a $10,000 investment becomes $80,000 in 27 years at 8% per year.

Not a bad return, indeed.

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