I saw a number of posts about a “lost decade” and provided my personal experience and some simulations that I ran as a comment. I got a few good replies and thought I might make a post about it.
Usual disclaimer: I’m not your investment advisor, everything you see is my personal opinion. I used my own experience and publicly available data. If you find mistakes please let me know. If you don’t like it please move on.
I started my first high paying job that allowed me to contribute to 401k in 1998 and lived through some interesting times. I was lucky enough to find jobs during tough times and was able to reliably contribute bi-weekly paychecks from 1999 to now, but due to frequent job changes I was not able to collect much of the employer match.
Few years ago I wanted to check how I fared against the simulation and created a simple assumptions:
1. I collected monthly returns for SP500 from January 1999 to now
2. I collected max IRS allowed 401k contribution for age under 50 and split into 12 equal monthly payments
3. I created a simple Excel spreadsheet that applies monthly returns to holding amount and added a new paycheck every month.
I believe this simulation effectively simulates DCA with max 401k allowed amount in SP500 over the course of 25 years. Once again this is not some maid up simulation - what I see in this Excel really closely resembles what I recall in real life.
I do not know how to post the Excel anonymously so I will mention few highlights.
1. My first max drawdown was in February of 2003 where my portfolio was down 28% in comparison to the total notional value (basically if I simply was collecting cash in the safe box)
2. By November 2004 I recovered to the invested notional amount
3. It started going downhill again in September 2008 and reached second max drawdown of 38% in February of 2009. To put this in a perspective, I invested $130k into 401k and my portfolio was worth $80k.
4. I recovered again in October 2011, almost 12 years after I started investing, so I effectively didn’t make any money on DCAing into SP500 for 12 years while taking all the related volatility.
5. My portfolio doubled around June 2019, almost 20 years after I started.
6. My portfolio briefly tripled in December of 2021 but then went down again.
7. My portfolio tripled second time in February 2024.
8. On the final step of the simulation I put combined $430k in 401k in nominal (not inflation adjusted) dollars and have about $1.3M today dollars in it.
If I’m not mistaken this is about 4.78% annual growth. If I took into account inflation I think it would be much worse.
Once again, the numbers above are from my simulation but it matches really well what I observe.
Would be happy to fix any issues or answer additional questions.