Market figures up to 2017 – not quite as impressive as you think

No one would deny that 2017 was a terrific year for the markets… by the end of the year, all stock indices were trading close to their all-time highs. Even the WSMSI (Working Capital Model Select Income Index) had a capital growth figure of almost 12%.

But let’s walk around the Wall Street advertising pennant and look at the numbers over the long term, say this century so far…

You will recall that the period from 1999 to 2009 was dubbed “The Dismal Decade” by a Wall Street that just couldn’t get over the idea that the “shock market” (collectively) actually went back over such a long period of time could time.

Has the “bull market” that emerged from the dismal decade really produced the kind of gains you’ve heard about?

· From 1999 to 2009, the NASDAQ (traditionally home to “FANG” companies) shrank a whopping 34%. From 1999 to 2017, it was the worst of any index, rising just 71%, or an average of less than 3% per year. So even the spectacular 160% increase in market value since 2009 hasn’t delivered spectacular long-term performance.

· From 1999 to 2009, the S&P 500 (though less speculative than the NASDAQ as a whole) lost a staggering 39% of its value. The S&P is recovering faster than the NASDAQ and has appreciated about 94% of its market value over the past 18 years, or an average of less than 4% per year. So not much to celebrate in the S&P either… for the long-term investor.

From 1999 to 2017, the DJIA with higher-quality content suffered less than the other indices during the somber decade, losing less than 1% per year on average. But its 18-year cumulative 115% market value growth averaged less than 5% per year. Reflective for higher quality content, yes, but not that impressive overall.

So what about an investment approach for income purposes in the same two time periods?

· From 1999 through 2017, a $100,000 portfolio of closed-end income funds (CEFs) paying about 7% per annum and compounding annually would have grown the invested capital to about $340,000 by the end of 2017. .. a labor return of 240% capital and almost triple the average long-term return of the three stock averages!

· During the dismal decade itself, a $100,000 portfolio of income CEFs paying 7% and compounding annually would have grown investment capital by about 111% (10% annually).

· Note that the average annual return of about 13% is based on annual rather than monthly earnings reinvestment… so it would be even higher. Hmmm, that kind of makes you wonder, doesn’t it?

Now some what-ifs:

· What if at some point before mid-2010 you were living off the income or growth in your portfolio?

· What if you were living off 4% of your portfolio’s “growth” or “total return” before the end of 1999, how much would you have left when the 2010 rally started?

· What if we don’t get enough years of double-digit market growth for stock markets to catch up with the earnings chart presented above?

· What if the market doesn’t produce a “total return” that is forever greater than your expenses?

· What if your portfolio contained enough income-related securities to cover your expenses, combined with better quality securities than those included in the Dow?

· What if the stock market corrects again this year?