A great deal of what we hold as historical truths about the financial markets is what might be called "pernicious fiction". Part may be true, some partially true and another piece so false as to cause damage. Some instant examples might be narratives like "real estate always goes up" (at least until it doesn't); "getting out of the market reduces risk" (at least until you want to get back in after a big run-up), or "guaranteed investments are best" (until you pay up for a guarantee that is worthless). Of course there are countless others but you get the idea.

Every few years investors are faced with financial market difficulties. It is easy to extrapolate the latest set of problems cascading downward into the abyss but history, actual history, teaches us a different lesson. We have endured at least a dozen economic downturns since WWII and each one has been temporary, while the increase has been permanent. The S&P 500 Index (which uses the pre WW II period as a baseline with a starting value of 10), first reached 100 in 1968. From there onto 500 in 1995, 1000 just 3 years later and ended 2010 at 1257 (of course down from the current peak over 1500 reached in 2007). Not exactly a straight line but a significant permanent trend regardless. The attached chart shows the growth of wealth while marking different periods in our history.  Pay special attention to the trend line.

Our daily diet of pessimism, force fed to us by every conceivable form of media, re-enforces our fear of the future. Yes indeed there are sizeable issues that confront our maturing nation both demographically and financially. There will certainly be structural changes in many areas regarding spending and debt. This does not, however, change the fundamental message of permanent wealth creation.