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The S&P 500 Index peaked on this day after years of dot-com euphoria. Over the next two and a half years, it lost about half its value, and it took nearly five more years to recover. But the relief was what the Fed Chair might call “transitory” —just a couple of years later, the 2008 financial crisis hit, causing an even deeper crash.
Ignoring dividends, it took over a decade from the year 2000 for the S&P 500 Index to shake off the bears and take off. While the result so far is impressive – the Index nearly quadrupled in these 25 years, I can’t help but wonder how this lost decade affected retirees or those who invested heavily during the dot-com boom. The decade-long wait to recover compared to a risk-free investment, including the unprecedented financial crisis that threatened a complete meltdown of capital markets, must have been painful and devastating. I can’t imagine how I’d feel if I had to endure such a market in my early retirement years.
I didn’t know about the significance of March 24, 2000, until I saw today’s Barron’s “Review and Preview” email mentioning the anniversary. It made me reflect—what was I doing at that time?
In 2000, I was new to this country and clueless about most things, including stock investments. (I’m still clueless about most things, except that I know a little bit about investments). The term “S&P 500 Index” would have sounded like a sci-fi gadget to me at that time. All I knew was that the company stock options (a mysterious term that I didn’t understand until much later) that I received upon joining my new work—and in the years that followed—became worthless instead of making me a millionaire. I wasn’t particularly upset. Honestly, I couldn’t even grasp how much a million dollars meant; it felt like a fairy tale anyway.
But looking back, I got incredibly lucky. A few years into my life in the U.S., my divorce forced me to educate myself about money and investments so that I could rebuild my finances from scratch. Living on a tight budget, my expenses shrank, allowing me to save aggressively. I cautiously stepped into stock investing to make my savings work for me.
A high savings rate combined with a prolonged bear market is a potent combination for long-term wealth building. The benefits became clear a decade or so later when the bull market gained momentum. This, in part, enabled me to make the bold decision to dial down my day-job and eventually retire early. I unknowingly became one of those who benefited from the so-called “lost decade” of the U.S. stock market, steadily dollar-cost averaging in a prolonged “buyer’s market”.
In his book A Wealth of Common Sense, Ben Carlson claims that the 2000s being a lost decade for the stock market was a myth.
According to Carlson, from 2000 through 2009, the total return of the S&P 500 was -9.1%. Pretty dismal indeed.
But over that same decade, emerging markets returned 162%, small cap value returned 158.6% and REITs returned 169%.
If you had invested beyond the S&P 500, you would not have done too badly.
The lesson is to spread your bets widely and not focus on just one asset class.
Right around this time, about 17-18 years ago, another meltdown was happening. I had always been 95+% in mutual funds, but pulled a bunch out and into money market but kept contributing monthly to my 457 and IRA. Getting antsy to get back into the stock funds, my plain dumb luck got me back in at about the bottom. Until now. I am backing off (as I probably should at my age of 77), although I am envious of the opportunity that young people will have at some point going forward, I just don’t know if I will get to see it.
Sanjib, I suppose you can call yourself lucky. Although you were new to the country and to investing, I’d say very good instincts were the story of your success. While many people sat out the decade, you pounded money in, taking advantage of the fire sale.
For me, divorce and starting a new business caused meager income during that period. For a short time my earnings were actually less than my alimony payments to the Ex. Fortunately through hard work and a wonderful new woman in my life, everything worked out for the best.
Thanks for posting about this period Sanjib. People often forget or are unaware that in the summer of 2013 the S&P was at about the same level as Sep 2000. That’s a very long time and I often mention this to people who think the market only goes up. That said, as Sanjib emphasized, if you can dollar cost average during these periods keeping your head down focused on the long term, it can work out well. During this period I had to start putting my four kids through college. The first enrolled in the fall of 2008 and my youngest graduated in 2020 sans a commencement ceremony. I had all their college money in equity mutual funds. I got lucky with my first child by cashing out at the market peak in 2007, but my second son had his college fund decimated by the time he enrolled in 2011. I continued to DCA with the last two and the S&P rebound worked out well for them and me. When you look back, luck seems to play such an important role in these matters. People retiring now might have a great deal of anxiety given current events. Let’s just hope and pray America continues to be better off in the long run.
Thank you for sharing your personal experience, Patrick. It must’ve been a stressful period for you with the market misbehaving at the time of withdrawals for college. Your children are very lucky to have you shield them from the high education costs.
I retired from full time work October 2000, but went right back to work as a part time contractor. I could no longer save in my 401k, but I did open an IRA. I stopped part time work early in 2004, but fortunately didn’t need to draw on my portfolio. I was busy traveling during the 2008-9 debacle, and neither sold nor bought. Aside from the healthy balance in my money market fund, my portfolio has remained untouched. Since I moved to a retirement community I have been drawing down the money market fund, and I also have a five year CD ladder. At 77 I am thinking it’s time for a little extravagance….
Thanks for sharing your story during that period, mytimetotravel. Very interesting.
I realize this is not going to be a popular comment, but as a young worker I know I would appreciate some serious declines in stocks going forward. COVID was a huge benefit, and this more recent drop around 2022-23 was great for my retirement accounts too, since I was basically maxing out everything at that time. That said, I also don’t like the idea of people losing their shirt because of a recession. People will say they should have planned better, but fortune (good and bad) is a heck of a thing. What’s the saying, man plans and god laughs?
Thank you for sharing your comment, Liam. I don’t think anyone really wishes people to lose their jobs or be hit by some unexpected developments. Market cycles and recessions are part of modern economics and are inevitable. Being lucky (or at least being less unlucky than many others) is an underappreciated gift from God.
“I can’t help but wonder how this lost decade affected retirees or those who invested heavily during the dot-com boom. “
Christine Benz over at Morningstar made this observation today: “If big losses occur within five years of someone’s retirement date, it’ll decrease the sustainability of the plan, whereas if someone is about 15 years into retirement, big losses matter less.”
Norman I will tell you how. Over the 3 year period 2001, 2002, 2003 I lost 48% of my entire nest egg. Some how over my investing career that started in 1966, I learned one thing, you have to be patient. The key is to never sell during a down market, that is the time to BUY, and if you cannot buy then it is the time to WATCH. Yes, it took about 4 to 5 years to recover from those losses, but then in the next 21 years there were only 3 down years 2008, 2018 and 2022. And over those years my assets more than tripled, which has granted me a very nice retirement. Save as much as you can and always take any free money for your IRA or equivalent from your employer.
Well done! You touch upon many wealth-building points. I got burned by the Dot-Com bust and it did seriously affect me. It made me reconsider my investing approach. The 2008 financial melt-down was far less devastating for me because I had become a more cautious investor. As you noted a high savings rate can do wonders and we can continue to save during bear markets. Dollar cost averaging into the recent bull markets can also do wonders. Like you, I have wondered about an alternative outcome, and I been thankful that I wasn’t on the cusp of retirement in 2000, or 2008. A financial reset in 1993 followed by the Dot-Com bust prevented an early retirement, but over a number of years I continuously reduced my annual work hours while continuing to save and invest.
Thank you, Norman. Great that the dot-com bust taught you to become a more cautious investor. I worry that the prolonged bull run in US stocks might be teaching the wrong lessons to young/mid-age investors.
Nice reflection, Sanjib. Count me among those who saved and invested heavily during that time. So thankful.
Thank you, Edmund.
It has been said that when it comes to investing it is better to be lucky than smart. I was still working during the Dotcom bust and the financial crisis. Contributing the max to my retirement accounts like I have done for years. Just did it without thinking. Made a huge difference in my net worth when I decided to retire. Looking back, l was lucky, not smart. Too young to retire.
Agreed. As much as I want to reduce the role of luck (or the lack thereof) in my financial matters, there’s no way to do much about it. I’m happy that my dumb luck helped me in this case, but I also worry about facing some unprecedented scenario in my retirement years that’d erode my financial security.
Sanjib, thanks for an interesting post, and points this out. Our peak earnings and savings years coincided with much of this period, especially the decade after 2007. We took great advantage of the “deadly combination” and it helped fund our retirement. It reminds me that there is always some amount of luck in investing, and life. It also highlights the importance of controlling what you can.
Thank you, Rick. I didn’t realize this myself until much later. 100% agree on focusing on what you can control, and do your best.
I would agree Rick.
The cohort that benefitted the most (as long as they could obtain a job out of college) would have been young workers who bought stocks at a discount for a decade. That is as long as their philosophy was buy and hold, they would have reaped huge benefits since that time.
So I would argue for many younger workers the following statement …
“A high savings rate combined with a prolonged bear market is a deadly combination for long-term wealth building.”
is erroneous.
The above statement would be true however for those older and closer to retirement during this era.
The use of the word “deadly” may be confusing the issue. Sanjib, I believe, meant it in a positive sense.
I was a bit confused at first but that is how I interpreted it
I believe you are correct, Jonathan — my Automatic Linguistic Corrector (necessary with my Chinese wife) clicked into action when I read that sentence.
Sanjay, I would suggest changing that word to prevent misunderstanding of your main point.
Thank you, Jonathan and Mike. Yes, I used the word in a positive sense, but didn’t realize that it’d lead to misunderstanding. I’ve changed it to a less-deadly word :).
Oops, that is my literal mind 😳
I created this post before midnight on March 24th, but the post date is showing 3/25/2025. The title probably should be “Twenty-five years ago yesterday” :).
Which time zone are you in?