Is the Stock Market Boom Really a Bust?

Stock market cheerleaders these days sound as inebriated as New Year’s Eve drunks on Y2K. Too bad their hangovers have apparently affected their memories since 1/01/2000.

Since that date, over 88 months or more than two-thirds of a decade have passed by, yet the Dow Jones Average Industrial Average and the Standard and Poor’s index of 500 stocks have barely moved an inch. Imagine an S& P stock unit, consisting of fractional shares of each stock in the index, costing in dollars the value of the S& P index. On the first day of 2000, that unit would have been worth $1,469.25. At the end of April, 2007 it was worth $1,482.37.

Measured by these widely recognized yardsticks, if your retirement portfolio was invested only into blue-chip stocks and if you did not spend a dime, the portfolio you held at the birth of the Millennium has finally recovered its losses. After suffering the slings and arrows of anxiety and despair, you finally broke even. But is even this any cause for celebration?

Just think, if you had bought a long term CD at the bank, and earned a 6% annual rate, instead of investing into the stock market, your retirement account would be up almost FIFTY PERCENT! Wow, it would take a Dow Jones Industrial average today of almost 20,000, instead of its 13,000 current level, to match that stunning CD performance!

Meanwhile, we hear talk of consecutive day records going back to the 1920’s being broken, but that is just a distraction considering how much poorer the average American is in relative terms than he or she was in 2000. For example, if we factor in even the modest inflation factor we have experienced during this period, a stock portfolio has lost 20% of its real value. (Source: The Federal Reserve Bank of Minneapolis). So a $100,000 retirement portfolio of blue chip stocks owned at the beginning of 2000 is now worth only $80,000 in “2000 dollars”. I guess confetti is not really in order.

If we measure the value of the same 88 month old blue-chip stock retirement account in Eurodollars instead of U.S. Dollars, that same account is worth only $68,000 by comparison.

Thus, the question restated is: “Are you better off now than you were a little over 6 years ago?” The average stock investor may be just scratching his or her head and wondering what all the hoopla is about.