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Author: huggybunny CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Wisdom of S&P index funds? Date: 6/20/2008 6:15 PM
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So I was lamenting the precipitous drop in the markets today - which I shouldn't, I know I need to be more dispassionate about these things. Anyway, I thought to myself, "Hmmm...what if I had bought an index fund back at the beginning of the decade, I'm sure I'd be doin' just fine, right?"

WRONG!
I imported the historical data for IVV (S&P ETF, using it as a proxy) to excel and put together a scenario of an initial investment of $14,000 on 5/19/2000 (the date IVV was first offered, but that's anecdotal, the point is, it was at the beginning of the decade).

Unless I'm doing something completely wrong, it looks like the value would be DOWN $800, or -5.8% !
Here's the graph i generated...
http://backmask.cotse.net/IVV.gif

OK, OK...I did NOT factor in dividends, which would definitely make a positive difference. But I'm not sure it would make a big enough impact to make an S&P index fund investment worthwhile this decade. I also realize that if I DCA'd in over the last 8 years the picture would be different...but let me make my point.

Now, I know what people will say...that 2000 was when the tech bubble burst and the market tanked for a prolonged period after that. That was an unusual event. It could be, but looking at the chart of the S&P from 1970, it doesn't appear to be:

http://tinyurl.com/4rb59k

For years and years before the 90s the S&P rose steadily, and could probably be counted on, over time, to go up. That appears to be the conventional wisdom:
http://www.fool.com/MutualFunds/IndexFunds/IndexFunds01.htm

But it looks like during the 90s the behavior of the market changed, took a much more speculative slant maybe? That second peak there indicates that the first peak was perhaps not an isolated incident. Of course, two data points don't necessarily equal a definite trend.

Sure, an S&P index fund shouldn't be my only retirement investment (and thankfully, isn't for me), but it's the benchmark by which most investments are measured and most funds try to beat - albeit apparently unsuccessfully.

But this definitely has me very concerned. As you can probably tell, I'm an unsophisticated analyst. I will probably be blown out of the water in this discussion (I hope I am). I only know things insofar as they affect me and my retirement portfolio. I only started investing in the early 2000s (I'm 34 now) and I know this: If my portfolio value were to go up at the same low rate it has gone up over the last 8 years...there's simply no way I could reach my retirement goals.

It makes me question not only index investing (which I really *want* to work for me), but investing in general. I'd have to time my retirement to be during a peak or basically I'd be screwed.

What am I missing here? Any comments are much appreciated.
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