Dire decade heightens savers' investment anxiety

Thu Jan 7, 2010 10:25am EST
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By Mike Dolan - Analysis

LONDON (Reuters) - The worst investment decade since World War Two bids a sorry farewell this week to savers approaching retirement in droves.

Aside from the relief of 2009's equity recovery, the last ten years have delivered two devastating stock market crashes, a spectacular credit boom and bust and persistently low yields from unusually buoyant government bonds.

Since December 1999, a typical 60/40 equity/bond portfolio in the United States would have recorded the lowest average annual returns since the 1940s at about 1.4 percent. Adjusted for inflation, it was the worst decade since the 1970s.

Wall St's S&P500 index is set to record its first negative decade -- down 24.6 percent since 1999. It remains in the red to the tune of 9.8 percent even when dividends are reinvested.

And if you happened to be an unhedged investor from overseas, you suffered a double whammy. The dollar lost some 23 percent against a basket of the most traded world currencies.

Starting the clock at the peak of the dot.com boom probably skews the numbers. But a wider problem of ebbing returns is reflected well beyond the United States and beyond equities.

Benchmark bourses in France, Italy, Ireland, Netherlands, Finland, Greece and Iceland have all underperformed the S&P500 in local currency terms, notching up losses of between 35 and 70 percent over the decade.

And accounting firm KPMG reckons the noughts could become a "lost decade" for pensions in Britain. A typical UK pension fund strategy would since 1999 have bolstered assets by just 2.25 percent a year, before costs -- less than half the 4.7 percent possible if the assets been kept in bank deposits.   Continued...