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  • Writer's pictureNoel Watson

The S&P 500 lost decade - how to protect your retirement

Updated: Feb 28


The S&P 500 is an index that tracks the performance of the largest 500 listed companies in the United States. The index has performed very well in recent years compared to other stock markets worldwide, but this hasn't always been the case. In this blog, we look further back in time, focusing on periods when returns haven't been quite so good for the S&P 500 and evaluate what steps you might consider taking to protect yourself.

Recent history - a tech story

In recent years, the largest names in the S&P 500 by market capitalisation have tended to be some of the well-known technology-focused companies. A few years ago, the FAANG stocks (Facebook (before it became META), Amazon, Apple, Netflix and Google) were all the rage. The latest buzzword is the Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla). The profits and market capitalisation of these seven companies are greater than almost every G20 country.

A breakdown for a Vanguard S&P 500 index tracker is shown below, with the magnificent seven comprising over 25% of the index!

Analysis of comparative returns over the last decade (1/2/2014 - 31/1/2024) paint an interesting picture, with the S&P 500 outperforming:

  • Developed markets (MSCI World) by about 54%.

  • Global markets (MSCI All Country World Index) by around 70%.

  • Emerging markets (MSCI Emerging Markets) by around 350%!

  • Global bonds (Bloomberg Global Aggregate) by a lot!!

The S&P 500 lost decade - 2000 to 2010

Many might wonder whether there is any point in investing anywhere other than the S&P 500, given the results over the last decade. Looking back in recent history to the period from 2000 to 2010 may give us the answer. During this decade, S&P 500 investors had to deal with two market downturns - the aftermath of the .com bubble and the Global Financial Crisis (GFC). This led to the S&P 500 having a negative return over the decade (01/01/2000 - 31/12/2009).

If you look back to news articles published towards the end of the decade, you can see how the mood was very different to today.

  • "All of the growth in the world is expected to be in emerging markets, and nobody doubts their stability anymore (warning!). So why bother with US equities?"

  • "Baby boomers are terrified for their retirements. The last thing they want is to lose their cash in another market crash. So they're going to fixed-income"

  • Now that stocks have recovered some losses, advisers say many clients are seizing the opportunity to cash out of equities and invest more cautiously in the future.

  • Clients come to financial planners like Frank Boucher, based in Reston, Va., saying they want no exposure to the stock market at all. Boucher warns them that, without the chance for equity gains, they might need to work longer, save more, or spend less. "They say, 'That's fine. At least I get to sleep at night,'

  • People have had a tough time getting behind equities. It has been a rough year," he said, referring to the year-to-date net outflow of $4.8 billion from U.S. equity funds. Non-domestic U.S. equity funds, however, managed to pull in $152 million, illustrating the negative focus on U.S. equities. Taxable bond funds pulled in a net $4.8 billion, while the safe-haven play -- money market funds -- pulled in a net $6.2 billion.

  • Since the beginning of 2008, stock mutual funds have suffered cash outflows totalling roughly $245 billion.

Was this S&P 500 "lost decade" a one-off?

Was this lost decade a "one-off"? Fortunately, we are lucky to have sufficient historical S&P 500 data to investigate. The one caveat is that we don't have historical data for exchange rates stretching back as far, so we will use USD returns for this analysis.

For the 2000-2010 period, the inability to convert to sterling didn't make much of a difference (but it might have done for the other period we will analyse below).

Looking at the returns for the S&P 500 from 1926 (on a logarithmic scale), we can pick out the 2000-2010 lost decade (along with the two market downturns during that time) mentioned above.

The aftermath of the Great Depression is also evident, resulting in another lost decade from 1929-1939.

If we cherry-pick our dates, we can see that the S&P 500 was still below its September 1929 level 15 years later!

The period from 1964 to 1974 was also not far off a lost decade, with the 1973-1974 stock market crash happening towards the end.

Again, the press proclaimed the death of equities a few years later!

2000-2010 S&P 500 returns vs other indices

We've seen how the S&P 500 is susceptible to a lost decade - let's now compare how the other indices reviewed earlier fared.

Recall that the decade from 2014-2024 had the S&P 500 leading the pack.

  1. S&P 500

  2. Developed markets

  3. Global Markets

  4. Emerging Markets

  5. Global bonds

However, looking at the returns of the S&P 500 over the lost decade versus other indices paints a very different picture.

The 2000-2010 "returns "league table" is almost a mirror image versus that of 2014-2024!

  1. Emerging Markets

  2. Global bonds

  3. Global Markets

  4. Developed markets

  5. S&P 500

S&P 500 vs a real-world portfolio

If we now compare the S&P 500 to a real-world portfolio consisting of the following:

  • 36% developed market equity

  • 12% developed market small-cap value

  • 12% emerging market equity

  • 40% global bonds

For the decade from 1/1/2014 - 31/12/2023, the S&P 500 has returned around three times that of the diversified portfolio.

However, if we refer back to our lost decade, we can see two things:

  1. The diversified portfolio far outperformed the S&P 500 over the period.

  2. The diversified portfolio had broadly similar returns over the two decades.

If we look over the whole period from the start of the lost decade to today (01/01/2000-31/12/2023), we can see that the S&P 500 has generated greater returns than our diversified portfolio (546% vs 395%) albeit with more volatility (14.61% vs 8.99%) - we discuss this in the context of Sequence of Returns Risk below.

The S&P 500 index didn't take the lead until around 2020!

Note that the above assumes perfect investor behaviour. In reality, we would expect our S&P 500 investor to display a larger behaviour gap versus the holder of the diversified portfolio as they struggled through the 2000-2010 period, with some selling up, having sworn off equities for life!

As mentioned above, the range of outcomes for the diversified portfolio versus the S&P 500 over this period is much smaller, with the worst 1-year return being about half that of the S&P 500 (17.38% vs 33.81%).

What does this mean for creating a sustainable retirement income in the real world?

You will note that we haven't compared our diversified portfolio to the S&P 500 for the two other challenging periods we covered above (The Great Depression and 1964 to 1974). Alas, many of the indices do not stretch as far back as the data we have for the S&P 500.

However, Timeline has broad market indices going back around 100 years, so we will examine how the two approaches (diversified portfolio vs S&P 500) would have fared historically. We will use a 20-year time horizon, allowing us to evaluate how someone retiring at the start of the lost decade would have fared.

The starting balance is £1,000,000, and Mr S&P 500 will take out an inflation-adjusted £40,000 a year.

The diversified portfolio is the same as above:

  • 36% developed market equity

  • 12% developed market small-cap value

  • 12% emerging market equity

  • 40% global bonds

We can see that the balance in real terms for the 2000 retiree is larger (£1.31m) than the starting balance.

The balances after 20 years for the following scenarios are shown below:

  • Best case (green): £7m

  • Median case (blue): £1.75m

  • Worst case (red): £390k

For the S&P 500, the closest we will get is the U.S. total market for our portfolio.

This is slightly more diversified than the S&P 500 (for example, Microsoft is 6.23% of the index vs the S&P 500 7.25%), but we think it's a reasonable approximation.

Our 2000 cohort retiree has a balance after 20 years of £677k, just over half that of our diversified portfolio equivalent. This may come as a surprise, as our analysis above showed the diversified and S&P 500 portfolios having broadly similar balances after 20 years (2000-2020). The difference is down to the Sequence of Returns Risk (SORR). SORR shows that the order of returns when a retiree is drawing on their portfolio is important, and the S&P 500 lost decade severely impacted the sustainability of the retirement portfolio.

The balances for the various scenarios are shown below.

  • Best case (green): £12.5m

  • Median case (blue): £2.4m

  • Worst case (red): £0k (runs out after 18 years)!


The S&P 500 has gone through some very challenging times over the last (near) century. We have seen that the bad times can be challenging, both emotionally (see the comments from various articles above) and from a retirement sustainability point of view (see the money running out in the worst-case Timeline analysis for our S&P 500 portfolio).

While investing in "what is working now" can be tempting, this can potentially be detrimental to your retirement. They say that diversification is the one free lunch in finance; this is particularly important when planning a sustainable retirement.

There is always the chance that "this time is different". It may well be, and the S&P 500 might continue outperforming the other indices and not suffer another lost decade. However, it may not, and the downsides are severe enough that we would struggle to see how someone could base their retirement planning using such an approach.

Want to find out more?

If you would like help to build a robust retirement portfolio that minimises the risk of a lost decade and helps provide a sustainable retirement income, please get in touch.

About us

The team at Pyrford Financial Planning are highly qualified Independent Financial Advisers based in Weybridge, Surrey. We specialise in retirement planning and provide financial advice on pensions, investments, and inheritance tax.

Our office telephone number is 01932 645150.

Our office address is No 5, The Heights, Weybridge KT13 0NY.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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