But as I am reading this book, "The New Coffeehouse Investor" by Bill Schultheis, which was originally written in the 1990s, I am beginning to wonder if indexes have had enough time to show their true nature.
Now I am obviously very new at this, so my thoughts could be way off base, but the conjecture is interesting none the less.
The S&P 500 was first published in 1957. Up until the turn of the 21st century, there wasn't a single 10 year period where investors would lose money. The chart on Morningstar.com for the S&P clearly shows this for the years prior to 2000:
However, if we add in the years post-2000, we see a very different picture:
Unlike the first chart, there are several places that face a drop in value after 10 years post-2000. Of course, with the 2008 recession this is understandable, but there were also significant recessions before the year 2000, yet the impact they had on the chart seems negligible. Why is it so much more volatile now? Is the index old enough to make judgments of its typical performance? It almost seems like its behavior has changed after the year 2000.
This change in behavior is especially important for asset allocation, as if the indexes have become more volatile then perhaps some people who are more averse to risk won't want to fill their portfolios with them.
Perhaps there is a rational explanation, or maybe these seemingly radical up and downs will just end up being little blips in future performance charts of the S&P 500. Either way, I am very interested in why this has changed, and what the implications are.
I'm not sure if it is as significant as I am making it seem, but it is definitely something to think about.
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