Imagine you had invested $10,000 at the bottom in 2008. The results you find below might not blow you away on an actual basis, but the amount invested is all relative based on your financial situation. It’s the percentage gain that’s more important because that number is going to be the same for everyone – assuming investors poured money into the market at the exact same time for this hypothetical situation. In addition to looking at how much money you would have made, we’ll also take a brief look to see if the same kind of return is possible over the next eight years.
The S&P 500 consists of approximately 500 large-cap stocks (it’s never exactly 500 stocks these days and tends to change) that are either listed on the NYSE or NASDAQ. Most retail investors refer to the Dow Jones Industrial Average (DJIA), which includes 30 stocks, when talking about how the market is doing. Most professional investors and traders refer to the S&P 500 because it tracks approximately 500 stocks opposed to 30, making it a better indicator of market performance.
The bottom for the Financial Crisis was March 9, 2009, when the S&P 500 hit 676.53. For simplicity purposes, we’ll call it 676. If you had $10,000 to invest at that time, it would have bought you 15 shares (rounded up from 14.7 assuming you could have thrown in a few extra bucks). Today, the S&P 500 stands at 1,883.
1,883 – 676 = 1,207
1,207 x 15 shares = $18,105 (net)
Not bad for a $10,000 investment. And this doesn’t include the dividend yield, which is always changing, but currently stands at 2.33% for the S&P 500.
The Dow Jones Industrial Average is intended to track the 30 strongest blue chip stocks throughout the entire market. Historically, it has been weighted toward industrials, but that could change going forward. Regardless, the DJIA stood at 6,507 on March 9, 2009. A $10,000 investment would have bought you 1.5 shares. Today, the DJIA trades at 16,130.
16,130 – 6,507 = 9,623
9,623 x 1.5 shares = $14,434 (net)
This isn’t as big of a gain as if you had invested in the S&P 500. The DJIA does come with a bigger yield, with DJIA stocks currently yielding an average of 3.14%.
The NASDAQ is historically known to track mostly technology stocks. This isn’t as true today as in the past. You will still find plenty of tech stocks in the exchange, which consists of approximately 4,000 stocks. Whether they’re tech stocks or not, you’re going to find more growth companies in the NASDAQ. This will lead to bigger gains during bull markets and bigger sell offs during bear markets. On March 9, 2009, the NASDAQ traded at 1,268.64. We’ll call it 1,268. A $10,000 investment would have bought you 7.8 shares, which we’ll round up to 8 shares. Today, the NASDAQ trades at 4,081.25; we’ll call it 4,081.
4,081 – 1,268 = 2,813
2,813 x 8 shares = $22,504 (net)
Since the NASDAQ consists of a lot of growth stocks, you won’t find as much yield. For example, the NASDAQ 100 currently yields 1.09%. However, with that return on the appreciation side, it’s doubtful that you would care much about yield.
Whether you’re bullish or bearish, the odds of the above returns repeating themselves over the next eight years are likely to be 0%. If you believe that the economy is improving, that’s fine. There is no doubt that coordinated central bank stimulus helped move asset prices higher since 2009, especially from 2009-2014. This process will not be repeatable as central banks don’t have as much firepower as they did at that time and each new attempt has less impact than the last.
If you’re bearish now, yet conservative and don’t want to short stocks, then you could have a superb opportunity to invest in a few years. If global deflation becomes a reality (if it isn’t already), then stocks will have to move below their 2009 lows over the next 1-2 years. Everything that was artificially inflated will have to move to their natural prices. If this happens and you were in cash all along, then you will have significantly increased your buying power. This would allow you to scoop up tons of shares in high-quality stocks that were unfairly punished during the sell off.
That said, the rebound in the future isn’t likely to be fueled by artificial stimulus. It’s more likely to be organic, which means it will move slower. That might sound like bad news, but it’s not. It’s excellent news. Why? Because it will be sustainable. And there is nothing wrong with slowly making money without constant worry about implosion. Better yet, if you choose the right individual stocks as opposed to an entire exchange, sector, or industry, then you could still see mammoth gains. You just need to know how to separate the winners from the losers.
If you were savvy enough to get in at the bottom in 2009, you did well. However, perceiving the recent sell off as a bottom could present high risk. Even if you’re bullish and correct, those kinds of returns are highly unlikely over the next eight years. If you’re bearish, then consider waiting in cash for bargain basement opportunities. If you’re patient, it could end up making you very wealthy.