Yes, investors who stuck around and remained invested have been rewarded handsomely for their patience, but no one in the fall of 2008 was expecting things to turn out as well as they have.

Share story

Your Funds

For longtime savers and investors, the financial crisis of 2008 has not been forgotten. It may never get out of the psyche of people who saw their portfolios cut in half in a matter of months.

But for investments that lived through it, every day that passes is pushing the crisis not just deeper into the recesses of memory, but out of the mind-picture completely.

This happens with every event big and small in the stock market, given enough time, but the impact of this one is going to be interesting, and it most likely will be used against investors by money-management firms.

It’s a trend that’s not changing just because the market has started the fourth quarter on a downtrend, with the Dow Jones industrial average shedding more than 1,000 points in the span of a few days. The big point drop is a blip when considered as part of the last decade.

Ten-year returns for the market have been looking good for a long time now, but they’re about to look ridiculously better if the market can just manage to hold reasonably steady for the next five months. While the headlines may make that feel unlikely, most industry watchers feel the current downturn is more a buying opportunity than the start of the next bear market, and the long-term numbers won’t dissuade that thinking.

About a month ago, the market surpassed the 10th anniversary of the collapse of Lehman Brothers. From the day before Lehman filed for bankruptcy through the market bottom in March 2009, the Standard & Poor’s 500 index lost roughly 45 percent of its value.

When accounts are gushing roughly 8 percentage points of value every month, it feels like you have gashed an artery and can’t stop the bleeding.

Many investors remember that feeling vividly, and because most investors are more focused on avoiding risk than on maximizing profits, plenty of people were burned out of the market and have remained distrustful and mostly on the sidelines ever since.

Yes, investors who stayed invested were rewarded handsomely for their patience, but no one in the fall of 2008 expected things to turn out as well as they have.

Many people stayed in the market simply because they didn’t know where else to go or what to do.

For those who got out, avoiding the painful losses felt better than missing the rebound has felt bad.

That brings us back to what is happening now to the 10-year numbers.

For starters, the 10-year returns already look pretty good. At the end of September, the last decade had generated an annualized total return of roughly 12.5 percent on the S&P, not quite 2.5 points higher than the historical average dating back to the Depression era.

But at the end of this month — even after the horrible start and barring some major collapse before Halloween — the annualized average total return will be about 13.5 percent. If the market goes through the volatility but comes out flat through to March, the bad times fall out of the 10-year results and the market’s annualized average total return will be closer to 17 percent.

Even if the current downtrend continues, 10-year returns grow unless the current results are as bad or worse than the 2008 bear market. No one expects that.

Thus, the bull market — having set a record for duration — looks better than ever, and the current downturn will be pitched as a buying opportunity. The numbers will be used to highlight the folly of sitting on the sideline, no matter how comfortable it looks and feels now.

Ironically, the sexy 10-year results push cautious investors to take chances — and to stick with domestic brand-name stocks — at a time when legitimate worries about the market’s future are emerging.

The early-October meltdown is a reminder that bear markets and downturns have not been repealed, but they are further into the rearview mirror than they have really ever been before, creating the impression that downswings are no big deal.

Return numbers as big as what investors have experienced since the market bottomed are the kind where investors can look and say “I could be happy with gains half that size,” a dangerous attitude because it ignores the fact the next decline could be less about reducing the level of gains so much as wiping out years of profits altogether.

So while a serious, protracted downturn may still be well into the future, investors need to start protecting themselves from the numbers.

Remember that stocks, historically, return about 10 percent annualized (before any transaction costs), and that a return to that long-term trend is going to mean that the market goes through a period of significant pain.

Keep in mind, too, that for most of this bull run, diversification has not worked. The best strategy for racking up the gains was to go big domestic, all the way. Spreading money into different asset classes was an effort in peace of mind that protected against a downside that never showed up; even with this October downswing, nearly all asset classes moved in sync.

At some point, however, the market will pay off on diversification. It remains the right strategy, even as the numbers now more than ever suggest that maybe it isn’t.

The market has reminded you this week that you can’t ignore or avoid downturns.

The best strategy for a long-term investor remains a well-diversified portfolio with assets balanced to perform reasonably no matter what the market does next.