Posts
April 28’s post looked at calendar year periods of different lengths. But we can get a more robust sense of how long it might take for different asset classes to recover from real losses by looking at 12-month periods of all sorts—not just calendar years. After all, there have only been 83 calendar years between 1926 and 2008—the period studied—but there have been 988 12-month periods to pore over if we look at all 12-calendar-month periods (e.g., April 1 2008 – March 31, 2009) between January 1, 1926 and March 31, 2009.
The pattern we saw in April 28’s post holds. Take a look at the graph below. Historically, both stocks and bonds have recovered from real (i.e., inflation-adjusted) losses given enough time. The longer the period between measurements, the less likely your investment will have experienced a real loss. Stocks (the blue line) have taken as long as 19 12-month periods, and bonds (the red line) have taken as long as 52 12-month periods. A 50%-50% mixture of stocks and bonds (the green line) has taken up to 20 12-month periods, but overall has tended to suffer fewer losing periods than either stocks or bonds standing alone.
As in prior posts, I measured stock performance by the total return on the S&P 500; bond returns by the total return on intermediate term Treasury bonds; and inflation by changes in the consumer price index.
As previously pointed out, this is just one aspect of investment risk, and a rather narrow one at that. Stay tuned for more and different ways to wallow around in risk.
I hate to seem like a boob here, but does 19 12-month periods mean it took 19 years or 19 months to recover (I looked once a month 19 times)? Less than two years is quite reassuring. Nineteen years means I may not live to see my equities recover.
ReplyDelete