The other day as I was driving to Denver the airways were filled with the big news – “the NASDAQ has hit 5,000 for the first time in 15 years”. As the expert remarked, “Wow!”.
The wow factor is that, after 15 years, you are back to where you started in the tech heavy stock index. While Einstein referred to compound interest as the eighth wonder of the world, we have gone 15 years with no compounding. If you figure in the effects of inflation during the 15 years, you are probably at least 30% away from having the same buying power that you started with 15 years ago. Alarmingly, a 30% gain in the NASDAQ would place the index in well overvalued territory (a bubble again?).
Unlike the excitement I heard on the radio, this is the depressing result of 15 years of a long term (referred to as “secular”) bear market. There is no sugar coating how bad this result really is. For most investors 15 years is a significant portion of their wealth building time. In this case, investors have built zero wealth minus the rate of inflation! How many people would be happy putting money into a volatile and risky investment and not having to show for it many years later?
Enjoy the “big news” and chalk this up as one more reason to focus on your own finances and goals and avoid being distracted by the roar of the crowd.
By Ted Schwartz, CFP©