Some mix of Investment have fared better than others and it explains the lost decade for US economy in a lot more clarity that is if you agree with the thesis that equity markets can reflect the state of economy over long periods of time.

If you invested $100,000 on Jan. 1, 2000, in the Vanguard index fund that tracks the Standard & Poor’s 500, you would have ended up with $89,072 by mid-December of 2009. Adjust that for inflation by putting it in January 2000 dollars and you’re left with $69,114.

As of mid-December, your $100,000 would have grown to $109,334, though that is just $84,921 when you take inflation into account. Still pretty dismal, though it shows the importance of diversification even within a broad category like stocks.

Now, consider a much more realistic scenario, with 50 percent of the money in bonds. If the decade begins with $25,000 in each of the domestic and international stock funds and $50,000 in Vanguard’s Total Bond Market Index Fund, you end it with $145,619, or $112,971 in 2000 dollars. That’s how retirees, with a fairly aggressive 50 percent chunk of the portfolio in stocks, might have fared if they had been hoarding some investments while living mostly off Social Security and a pension or annuity. (For those who were spending down a portfolio with this aggressive allocation, there is no salve except the hope that what they have left will continue to bounce back.)

But if you’re not yet retired, you were probably adding money to your portfolio throughout the decade. Let’s say you started with the same $100,000 and the identical 25/25/50 asset allocation from the previous scenario. Now, imagine that you added $1,000 a month and then rebalanced your account annually so that you began each new year with that original allocation.

The result? You ended up with $313,747, or $260,102 in January 2000 dollars. Hardly a lost decade at all.

Fresbee