Gene Walden: The stock market - what good is it?

That strategy worked well through the 1990s when stocks had an outstanding run. But the past 10 years have been an abysmal period for stocks. If you were counting on stock mutual funds to build your retirement savings, the truth is, you'd have been better served to simply put your money in the bank.

In fact, the decade of 2000 to 2009 promises to be the worst decade for stocks since the Standard & Poor's 500 (S&P) was introduced in the 1920s. Since the start of the decade, the stock market has actually lost ground.

The S&P opened in January 2000 at 1,469 and closed at 825.88 on Friday -- a 44 percent decline.

If you had your money in stock mutual funds, you're probably down even further. Funds typically impose annual fees of 1 to 2 percent plus other expenses that can take a bite out of the total return. Add another 2 percent per year for fund costs for the past nine years, and the total loss for a mutual fund investor could be as much as 50 percent.

In other words, if you had $1 million in the market in 2000, you could be down to about $500,000 today. You would have fared even worse if you had your money in the Nasdaq composite stocks; that index is off more than 60 percent this decade.

Not all types of stocks have fared as poorly. Since 2000, total return for the S&P mid cap index is up about 26 percent; the Russell 2000, which is a composite index made up primarily of small stocks, is flat.

Minnesota stocks have fared better

Minnesota stocks have done somewhat better. Total return for the Bloomberg Star-Tribune Index of the 100 largest Minnesota-based publicly held companies is up about 17.7 percent this decade. Some of the local success stories include 3M, where total return has climbed 32 percent; Ecolab, up 98 percent; Toro, up 274 percent, and Donaldson Co., up 175 percent.

But if present trends continue for the S&P 500, it would mark the first negative decade since the 1930s, when average annual price appreciation of the S&P 500 index was -5.3. percent. In the go-go 1990s, average annual return was 15.3 percent.

The key to long-term success

Susan Stiles, president of Minnetonka-based Stiles Financial Services, is not ready to give up on stocks. After two straight decades -- the 1980s and 1990s -- of average annual returns above 12.5 percent, "maybe we were due for a bad decade," she said. But she believes stocks could certainly bounce back to their historic averages once we've made it through the current financial crisis.

She refers to a theory known as the "mean reversion," which holds that stocks will always revert to their historic averages. After two big decades of growth, stocks may have been due for a tumble. But after this decade of negative returns, stocks could bounce next decade. "The message here is very clear," says Stiles. "This decade is as bad as the 1990s was good."

Stiles believes it would be a mistake for investors to change course now. Investors who move in and out of the stock market based on short-term market performance often end up on the short end.

Instead of changing strategies in response to short-term market performance, Stiles says investors should stick with the allocation that corresponds to their risk threshold profile.

"A typical asset allocation might be 60 percent stocks and 40 percent fixed-income and other investments. Then, based on your risk threshold, time frame and other personal factors, you might adjust that allocation," she said.

The key to long-term success, Stiles said, is to resist changing that asset mix in response to short-term market performance. She also recommends continuing a consistent dollar-cost-averaging strategy through good times and bad so that you continue to put money into stocks regularly regardless of the level of the market.

When can we expect stocks to return to the performance levels we had come to expect in the past?

Stiles believes the country's ability to weather the financial crisis will dictate the performance of the market in the months and years ahead.

"We are a resilient country with a resilient economy and smart, hardworking individuals. So I think we should be poised for the next decade to be a good one.''

Still, she adds, "at the end of the day, it all depends ...."

Gene Walden lives in the Twin Cities and is the author of more than 20 books about business and investing. Send questions to gwalden100@comcast.net.