FORTUNE -- You can learn a lot from anniversaries. Take the little-noticed one that arrives in a few days, marking three years since the U.S. stock market's all-time high. You didn't realize the market peaked on Oct. 9, 2007? That's understandable, given all the stuff we've had to deal with since then, most of it bad.
Despite a 75% rise in market value since March 2009, U.S. stocks are still down $4.7 trillion from their peak, according to Wilshire Associates. They have to rise by about a third just to get back to where they were three years ago.
Why am I inflicting this history on you? To show that past performance is no guarantee of future performance. Yes, it's a yawn-inducing cliché. But it's a lesson you'd better pay attention to. And you'd better get used to the kind of returns investors got before the great bull market of the 1980s and '90s.
Even though stocks have averaged close to double-digit returns over 85 years, the returns are very uneven. They can be very high, as they were during the two final decades of the 20th century, but turn nastily negative for years on end. Like, say, for the past three years -- or the past ten.
Let me show you why, history notwithstanding, you can't deposit an average return in your bank account, or use it to pay your bills.
U.S. stocks, as measured by the Standard & Poor's 500 (SPX), have returned an average of 9.66% a year in price gains and dividends since January 1926, according to Ibbotson Associates, a Morningstar company. (I'm using Ibbotson's long-term numbers because Wilshire's go back only to 1970.)
However, if you break this long history into several pieces, as Ibbotson did for me, you'll see that returns vary wildly for extended periods. You also will see why so many investors still think, in their hearts, that long-term returns in the high-teen range are their natural right, because those are the returns they got for an entire generation.
During the first period, from January 1926 through July 1982, stocks returned 8.84% a year. Most of that -- 4.82% -- came from dividends, which were considerably higher, relative to stock prices, than the current 2%.
Then, in August 1982, the great bull market began. It ran through March 2000. The S&P returned an astonishing 19.22% a year, more than double what it had done for the previous 50-plus years. A whole generation got used to the market showering money on us. A boring old S&P index fund would more than double your money every four years. Many people believed -- wrongly -- that this was the new normal. (Sound familiar?)
The long, long rise helped produce overfunded pension plans for corporations and governments, let people retire early, and allowed you to spend more than you took in but still have your wealth increase. As a bonus, tax payments from capital gains flooded into the U.S. Treasury and helped balance state budgets. The market was our friend.
You know the sad story. The stock bubble burst, as bubbles always do. It took almost seven years -- until February 2007 -- for stocks to surpass March 2000 highs. Then, after eight happy months, they tanked again.
Stocks have actually lost money for investors in the decade since the bubble burst. Since March 2000, Ibbotson says, stocks have lost 1.58% a year, even after including dividends. Talk about dead money. The long-term Ibbotson return has fallen sharply during this period, from 11.34% at the end of the bull market to the current 9.66%.
Stocks are clearly cheaper, relative to companies' earnings prospects and assets, than they were at the peaks of 2000 and 2007. That makes the market more attractive than it was then -- but whether you should buy is your call, not mine. It depends on your circumstances, tolerance for risk, and financial staying power.
No matter what you do, the looming, gloomy anniversary is a reminder to be realistic about your expectations, and not to expect year after year of good, consistent returns. Historical numbers are a helpful guide -- but investing is about the future, not the past. History isn't destiny.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||4.08%||4.12%|
|15 yr fixed||3.23%||3.21%|
|30 yr refi||4.14%||4.12%|
|15 yr refi||3.28%||3.21%|
Today's featured rates:
|Bank of America Corp...||16.82||-0.23||-1.35%|
|Ford Motor Co||14.59||-0.18||-1.22%|
|Cisco Systems Inc||25.03||-0.08||-0.34%|
New guidelines would limit number of shares executives get. More
In the last five years, pumpkin sales have risen 34% as people demand pumpkin in everything from beer to beef jerky. More
New York City launches a comprehensive site for all things related to its digital tech scene, Digital.NYC. More
For these seniors, the best retirement is not to retire. From a 102-year-old Wal-Mart worker to an activist park ranger, these workers have stayed on the job well into their golden years. More