An argument is bouncing around of late that government intervention will stop the robust stock market recovery that has followed every market downturn in history.
There is talk to nationalize everything from healthcare to banks, as anxious investors wonder if we risk becoming a socialist economy with a languid stock market.
Will that happen? Will our 401k’s rot in their depressed states indefinitely? No..not even close.
Just to satisfy our imagination, suppose we become like Sweden or Denmark and nationalize healthcare. We nationalize banks the way Sweden did in the early 1990s when they had a real estate bust. We have more government intervention in the economy.
Does that suggest stock returns will suffer?
If we consider 18 developed countries that have reliable stock market data, where does U.S. stock market returns rank the last decade? The U.S. markets ranks 17th out of 18. (Source: Loring Ward 2009)
The only country with returns lower than the U.S. over the last ten years was Belgium.
Sweden, Norway, Denmark, Singapore, Spain – countries that have heavier degrees of government intervention – performed better than our market.
Was that just an irregularity over the last ten-year period? Ten years is not adequate to draw any firm statistical conclusions. So let’s go back as far back as we have data – the last 39 years.
We would expect the U.S. to be a front-runner in stock market performance as we dominated the global markets for the last four decades. Surprisingly, we rank closer to the bottom than the top.
U.S. stock market returns rank 15th out of 18 countries. Sweden ranks number two. Denmark ranks number three. The Netherlands rank number four. These countries are closer to a socialist nation than the United States.
What does this mean to you as an investor?
You must distinguish between the effect of government policies on its citizens and the effects government policies have on owners of stocks. Those share owners are dispersed throughout the world. This isn’t the mid-1960′s. You can buy Norwegian stocks. Norwegians can buy U.S. stocks. Welcome to the global stock market.
I’m not promoting government intervention, I’m simply pointing out that it’s unlikely to affect the returns of a diversified portfolio.
If you’re still worried that government interference will prevent your portfolio from recovering, and seek the safety of principal via CD’s or similar investment vehicle, consider this.
The National Bureau of Economic Research reports there have been 15 recessions since 1926. During those recessions, the average return from the stock market low until the end of the recession is +25%.
Also, in the prior 15 recessions, the stock market recovery was well on its way before the recession had even ended.
If you’re waiting around for the recession to end so you feel good about the economy to invest for long-term goals you are doing yourself a disservice.
When the recession has ended, greed will have replaced fear as the strongest emotion felt by investors, just as it always does. That greed will have fueled the market recovery that you missed while busy shopping around for the best CD rates.
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{ 1 comment… read it below or add one }
Your statistics are reassuring.
Nationalization is a scare word for people, but it makes sense that if the US gov’t. is investing so much in these companies it will want to have more control. A private investor with a significant shareholding would have the same rights.
Plus, think about how many of these companies have shareholders who are sovereign wealth funds: those are government entities too, and their participation hasn’t obstructed normal operations.