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The Bear Market Drought Spoiled Us

I’m a long-term stock bull. Over the long-term, U.S. stocks have returned close to an annualized 10%. Foreign stocks have returned about 8%. Virtually no other unleveraged investment has produced those kinds of returns.

But sometimes past market action can make stocks look more appealing than they really are. And this is one of those times.

Consider this: Nine-and-one-half years into one of the biggest bull markets ever, Standard & Poor’s 500-stock index has returned an annualized 18.8%.

That’s not a great deal more than the long-term average return, but we’ve still been spoiled. It’s been almost 10 years since the last bear market, and most people have forgotten just how devastating bear markets can be. The 2007-09 bear market saw the S&P 500 plunge 55.3% – the biggest loss since the Great Depression.

But who today really remembers exactly how it felt to watch your investments shrink day after day during that treacherous time?

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