Could we see another lost decade for stocks?

Long dry spells aren't uncommon for stock markets, and the post 2000 bear market is unlikely to have worn itself out yet. Everyone is waiting for a sign to buy, but none is forthcoming.

"They said shares were for the long term," says Richard Northedge in The Independent on Sunday. But "how long does long have to be"? The FTSE 100 is now around 13% below its level of mid-July 1998. Throw in dividends and the index is up by around 14%, says Jennifer Hill in The Sunday Times. That's a pretty paltry annual return of around 1.4%, but it highlights the importance of reinvesting dividends.

Stockmarket historian David Schwartz notes that looking at average annual returns from 1900, capital gains come in at around 1%; with reinvested dividends, the figure rises to 4%-5%. Still, factor in inflation over the past decade and the return is negative; as Northedge notes, shares need to have risen by 20% to keep pace with price increases.

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