Dig out your old calendars, we're going back, waaaay back

As markets continue to fall, analysts have simply started using historical dates to forecast how low we could go. Today Montreal-based BCA Research warned that U.S. equities could fall to levels not seen since 2002. As it is, the last time the S&P 500 was this low was in April 2003:

Panic has returned in full force: equity and commodity prices are gaping lower, while the dollar and yen continue to surge. Investor sentiment has been crushed and despite extremely oversold conditions and appealing valuations, the bleak growth outlook provides little reason to be upbeat.

Bottom line: Stay defensively positioned; a retest of the equity market 2002 lows (at least in U.S. equity prices) seems probable.

That’s gloomy enough. But it gets worse. The lows of 2002 followed the mania of the dot-com bubble and its collapse. The fact is, we’ve already been there before. Back in 1997. In other words, if you bought an S&P 500 index fund 11 years, 4 months and 13 days ago, prior to the Dot-Com bubble, and then the debt-fueled bubble, the only gains you would have received over that time would have come from dividends.

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Granted, that’s an overly simplistic way to look at investing. Few people ever take a lump sum and dump it into an index fund on any single day. They spread their investments out over time and benefit from dollar-cost averaging. But as my colleague Steve Maich points out in his latest column in the magazine, stock markets don’t always go up over time. He used Japan’s Nikkei index, which has mostly headed south for the last two decades, as the example. But this latest rout shows that even in the West markets can be a huge let down for long-term investors.

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