...anyone who bought the S&P500 index (1517) on Aug 2000 would have to wait till Sep 2007 to see daylight again, albeit only for a fleeting time, because from there on we had GFC and had to wait till March 2013 to see the index regain 1517 again- 12 years and 7 months!
...the valuation was so high in 2000, it took 7 years to normalise, which then saw another implosion that required almost 6 years to get out.
...a lost decade won't be fun.
...the Fed can continue to pump and make crisis periods shorter, only as long as foreign investors are prepared to finance the USA by buying their US Treasurys. When that ends, the Fed becomes the BoJ. And the S&P500 could become the Nikkei.
A Lost Decade Is Coming: Why Blind Faith in Index Funds Will Burn You
The stock market has become a modern-day cult, with index funds as its sacred scripture. People are piling into these funds with reckless abandon, convinced they’ve found the ultimate, foolproof money-making machine. The belief is simple: buy an index, sit back, and cash in on the market’s historical growth. It’s become gospel for both everyday investors and big institutions alike. But here’s the harsh reality—this blind faith in passive investing is setting us up for a disaster. We’re on the brink of a lost decade, and most people don’t even see it coming.
The Index Fund Mania
Index funds have exploded in popularity for good reason—they’re cheap, easy to buy, and have historically outperformed most actively managed funds. But people are forgetting one crucial fact: past performance does not guarantee future results. The stock market doesn’t care about your neat little charts showing average annual returns. And while the S&P 500 has indeed delivered solid returns over the long run, there have been brutal stretches where it’s gone nowhere. Just ask anyone who invested during the 2000s and saw their portfolio flatline or lose value for ten years. Today, we’re walking into a similar trap. Money is flooding into index funds like never before. These funds now control over 60% of the U.S. stock market. But what happens when everyone piles into the same investment? Valuations get bloated, returns get squeezed, and eventually, the whole thing comes crashing down. If you think the stock market is a guaranteed money machine, think again. It’s setting up to punish those who are following the crowd without thinking.
A Market on Autopilot
The problem with this mindless rush into index funds is that it’s distorting the market itself. When investors stop looking at the fundamentals of individual companies—when they’re just buying the entire market without discrimination—they’re no longer investing. They’re speculating. And speculation, as history shows us time and again, is a ticking time bomb. As more money flows into these funds, the biggest companies in the index—Apple, Microsoft, Amazon—get even bigger, regardless of whether their underlying fundamentals justify it. These companies dominate the market simply because they’re in the index, not because they’re necessarily performing better. This creates a bubble of inflated valuations, built on nothing more than blind momentum. And here’s the kicker: the higher these valuations get, the lower the returns will be over the next decade. The market doesn’t care about your hopes and dreams of endless growth. When prices are this high, future returns are going to be meager at best, if not downright negative. You might think you’re riding a wave of easy money, but you’re actually heading straight into a brick wall.
The Complacency Trap
For years, low interest rates have been the wind beneath the stock market’s wings. Central banks pumped money into the system, and investors had no choice but to chase higher returns in the stock market. But that era is ending. Interest rates are rising, inflation is back, and central banks are tightening the screws. This is bad news for stocks—especially for overvalued ones inflated by passive investing. On top of that, the global economy is on shaky ground. Supply chains are still disrupted, war is raging in Europe, and tensions with China are escalating. These are the kinds of risks that can trigger sudden market corrections, wiping out years of gains in the blink of an eye. Yet despite all these red flags, people are still plowing into the stock market as if it’s a surefire way to get rich. It’s the same dangerous complacency we saw in the run-up to every major financial crash—whether it was the dot-com bust, the 2008 meltdown, or the housing crisis. People refuse to believe the good times could end, right up until they do.
The Coming Reckoning
Let’s be blunt: the faith in index funds is setting the stage for a brutal market correction. When everyone is on the same side of the trade, there’s no one left to buy. The market becomes a one-way bet, and when that bet starts to falter, things can go south fast. Index investing is no longer the rational, diversified strategy it once was. It’s become a religion, with people blindly following the mantra that “the market always goes up” without understanding the risks they’re taking. And when reality sets in, those same people are going to face a lost decade of flat returns—or worse. The uncomfortable truth is that the stock market is primed for disappointment. Valuations are sky-high, economic conditions are deteriorating, and passive investing has turned into a self-fulfilling bubble. If you think you can just throw your money into an index fund and watch it grow forever, you’re in for a rude awakening. So what does the next decade look like? Stagnation. Frustration. Disillusionment. Investors will watch as their portfolios barely move, or worse, shrink in value, while inflation eats away at whatever gains they might scrape together. And it will all come as a shock to those who thought they had found the key to easy money.
Wake Up Before It’s Too Late
This isn’t just another market cycle—it’s a perfect storm of overvaluation, economic headwinds, and dangerous groupthink. We’ve seen it before, and we’re seeing it again. The warning signs are everywhere, but most people are too busy counting their imagined future gains to notice. If you’re still pouring money into index funds without considering the bigger picture, now is the time to rethink your strategy. Because the lost decade is coming, and if you don’t wake up, you’ll be one of the millions left wondering why the easy money machine suddenly stopped working.
