The Stock Market: How Long is the Long Run?

The stock market goes up over the long run, right? That’s what we’ve always been told. But how long is the long run? If the market goes up over the course of 110 years, but suffers a 15-year-long decline during the course of that run, that could be enough to devastate your finances. Those unlucky enough to be 30 years old, say, at the beginning of a 15-year-long decline will find that the money they have saved during their prime youthful earning years will actually shrink if invested in the stock market.

Image by forexfolks

Let’s say you are 30 years old in June of 1964 and you have a baby. Your parents give you $1,000 for your child’s college education, and you invest it in the Dow Jones Industrial Average, which is at 831. You plan to take it out exactly 18 years later when the kid goes to college. Well, June 1986 eventually rolls around and the kid is about to head off to college. You check the Dow and find that it is now at 811. Your $1,000 investment is now worth $975.

Isn’t 18 years the long run? Evidently not.

In 1929 the Dow peaked at 381 before tumbling. It did not pass 381 again until 1954 – a period of 25 years. Could we be in for an extended period of negative growth in the stock market? Who knows? The Dow hit 14,164 in October, 2007 – and it may not reach that level again for 15 years. It has happened before.