Investing in the 90's

What can we learn from Investing in the 1990's? The table below shows the performance of small cap stocks, large cap stocks, long term bonds, and short term bonds during the 10 year period of 1990 - 1999, as found in book titled Investments by Bodie, Kane, and Marcus. This period had relatively normal inflation and interests rates. Did anyone make money during this period? What investment did the best?

If $1,000 was invested on January 1, 1990 here is how the numbers came out:

Small Cap Stocks = $3,654
Large Cap Stocks = $5,325
Long Term Bonds = $2,282
Short Term Bonds = $1,631

Stocks did very well in this decade. Large cap stocks came in first followed by small cap stocks. Long term bonds came in a distant third and short term bonds had the lowest return.

Below is a table of the value of the $1,000 investment at the end of each year.

Year /Small Stocks /Large Stocks /Long Bonds /Short Bonds
1990 /729 /968 /1,071 /1,079
1991 /1,096 /1,265 /1,268 /1,140
1992 /1,401 /1,362/1,367 /1,180
1993 /1,685/1,497 /1,579 /1,215
1994 /1,629 /1,516/1,465 /1,262
1995 /2,169 /2,088 /1,929 /1,333
1996 /2,527 /2,569 /1,914 /1,406
1997 /3,093 /3,422 /2,202 /1,481
1998 /3,014 /4,400 /2,500 /1,557
1999 /3,654 /5,325 /2,282 /1,631

OBSERVATIONS:

1. Stocks gave the best return
2. Stocks had the most volatility
3. Bonds did a better job of providing account balance stability
4. Stocks need to be held with a longer term perspective
5. You can not time the market
6. Stocks had more up years than down years
7. Long term bonds lost money 2 of the 10 years, so it is possible for a bond to lose money
8. Short term bonds never lost money in a year

Stocks had similar returns in the 1990's as the 1980's. The lower interest rates and lower inflation rates of the 80's gave better stock returns than during the 70's. It is important to know what you want your investments to do and act accordingly. It is not possible to predict the future value of an investment and diversification can smooth out some risk.