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Wasting Time

Jonathan Clements  |  October 27, 2015

STOCK MARKET GYRATIONS since mid-August have investors focusing intently on short-run returns. But if you can drag your gaze away from the daily turmoil, you’ll realize this is a colossal waste of time—and a huge distraction from the big story.

This thought occurred to me as I was playing around with the data available at MSCI.com. Take the MSCI World index, which includes 23 developed markets, including the U.S.  From the index’s year-end 1969 inception through Sept. 30, 2015, global stock markets have clocked 8.6% a year, with net dividends reinvested, while U.S. inflation ran at 4.1%. That was enough to turn $1,000 into $43,700, or $6,800 after adjusting for inflation.

Yes, stocks got a big boost from the great 1980s and 1990s bull market, as well as the strong gains in the current decade. But the MSCI index’s results also reflect the 1970s and the 2000s, neither of which were stellar for stocks. Performance was also dragged down by the Japanese market’s dismal losses over the past quarter-century.

My best guess is that stocks will return 6% a year over the next decade, while inflation runs at 2%. That’s somewhat below the return that global markets have generated since 1969, but still enough to create impressive wealth when compounded over many decades. There will, of course, be bumps along the way, but those who regularly shovel money into stocks will benefit as they buy shares at cheaper prices. My advice: Forget this year’s turmoil—and instead ponder the riches that will accrue to those who can ignore it.

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