How to Invest If the Next Decade Goes Nowhere
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The fear of investing for a decade and ending up with less purchasing power than when you started whatโs known as a โlost decadeโ is a very real concern. A lost decade is defined as any 10 year stretch where inflation-adjusted returns dip below 0%. While rare, theyโve happened in U.S. market history and can feel like a massive setback, especially for those relying on steady growth to reach financial goals.
An analysis of 96 years of U.S. stock market data using different scenarios revealed that lump-sum investing with no dividends reinvested led to three lost decades: the 1930s, 1970s, and early 2000s. But this isn’t how most people invest. When switching to monthly dollar-cost averaging (DCA), the number of lost decades increased to seven. However, reinvesting dividends significantly improved the outcome cutting lost decades down to just two.
Global diversification was tested by adding international stocks to the portfolio. Surprisingly, a 70/30 U.S./international split slightly increased the number of lost decades to three, due to the global nature of the economic challenges in the late 1960s and 1970s. Adjusting the allocation to a 60/40 mix reduced the number back to two, with a 50/50 split providing no further improvement. This suggests that while global diversification doesnโt guarantee a smoother ride, it can reduce risk when thoughtfully balanced.
For investors in the accumulation phase, avoiding lost decades isnโt just about asset allocation itโs about consistent behavior. Continuing to invest during boring or down markets, automating contributions, keeping fees low, and diversifying globally all help minimize long-term risk. Itโs also important to remember that investing success depends more on discipline and patience than perfect timing.
Ultimately, lost decades are only clear in hindsight, and while they canโt always be avoided, they donโt have to derail your financial future. By sticking to a smart, automated, and low-cost plan, you can stay on track and be ready to benefit from the eventual recovery when the markets bounce back as they always have.
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Disclaimer: This video is for entertainment purposes only. Everyone’s situation is different so do your own research before making any decisions with your money.
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I Analyzed 96 Years of Investing Data – Hereโs What I Found
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