There have been only two decades since 1930 when the stock market produced negative returns: the 1930s itself, when the S&P 500 lost 0.2% because of the Great Depression, and the 2000s, when the dot-com bubble, terrorist attacks, and the collapse of the financial industry and housing market all conspired to drag down the index by 0.44%.

It shows not only that so-called "lost decades" are extremely rare events, but also the stock market is the place to be if you want to create generational wealth over the long term. 

Person looking at declining stock chart.

Image source: Getty Images.

Yet there is the anomaly of the 1970s, which saw the S&P 500 generate 6% returns -- but because inflation averaged 6.8% over the decade, all investor gains were wiped away by the erosion of consumer purchasing power. And there is the fear we may see a repeat of that today.

The broad market index is in bear market territory, down 20% so far this year. Inflation is running at its highest levels since the '70s, gas prices are at record highs, and it's possible we'll see a second consecutive quarter of negative GDP growth, which is an unofficial indicator we're in an economic recession. 

Those conditions obviously make the time ripe for creating another 10-year period of negative returns, but I'm not convinced it will happen again. Here's why I don't think it will happen, at least not this decade, as well as how I'll be investing my own money in the 2020s and beyond.

Everything old is new again

There are indeed similarities between today and what occurred 50 years ago, conditions that led to the Great Inflation of the 1970s, such as:

  • Massive government deficit spending to finance the Great Society and the Vietnam War.
  • President Nixon taking the U.S. dollar off the gold standard.
  • Shocks to the economy from the OPEC oil embargo.
  • Federal Reserve easy money policies.

Compare that with today. The Federal Reserve has been at the center of a near-zero-percent interest rate environment since the Great Recession. The government's budget deficit of $2.8 trillion in 2021 was the second-largest on record. The $1.9 trillion American Rescue Plan in early 2021 is often cited as particularly responsible for the inflation we're experiencing today,  and the war in Ukraine is exacerbating the rise in oil prices that were already going up long before Russian troops entered the country.

We're also suffering from holdovers from the pandemic, such as supply chain disruptions that are still causing havoc even as much of the world increasingly views COVID-19 as being in the rearview mirror.

$100 bill with rising arrow.

Image source: Getty Images.

The same, but different

Despite the similarities, there are some differences. For example, supply chain shortages are starting to ease, though the effects will continue to linger.

Moreover, the oil situation is actually much different than what it was back then. The International Money Fund says the 1970s' "global oil intensity," or the number of barrels needed to produce $1 million in gross domestic product, was well over 800 barrels, around 3.5 times greater than today. 

And where oil prices that recently topped $120 per barrel helped produce gasoline prices north of $5 per gallon at the pump, the increase doesn't have the same economic impact as it did when oil went from $3 a barrel in 1970 to over $10 four years later, before quadrupling in price again by the end of the decade.

We're just not as dependent on oil today as we were, and while oil is still a key economic sector, it's not enough to wreak havoc on the economy in the same way.

It's also worth noting that the stock market, though down year to date, is still up 18% since the beginning of the 2020s. That includes the dramatic 34% decline witnessed at the onset of the pandemic.

A shield to wield as a weapon

Investors still need to be wary of the ravages of inflation, but they have a not-so-secret weapon at their disposal to help insulate and protect their returns: dividend stocks.

The asset managers at Hartford Funds found that between 1930 and 2021, dividends helped investors generate positive returns by contributing 40% to the total return of the index. Even during the lost decade of the 2000s, dividend-paying stocks generated annualized returns of 1.8%.

That was underscored by a separate study by J.P. Morgan Asset Management, which found stocks that initiated and then raised their payouts over a 40-year period between 1972 and 2012 returned an average of 9.5% annually, versus just 1.6% for non-dividend-payers.

Investors like me who want to improve their chances of not experiencing a lost decade of their own should concentrate their investing efforts on income-generating stocks and, better yet, choose those that have raised their payouts each year.

A good place to start might be with Dividend Aristocrats, or stocks that have raised their dividends for 25 consecutive years, or with Dividend Kings, which have done so for 50 years or more.

Always invest money you don't need to pay for bills or emergencies; own a diversified portfolio of good companies; hold through periods of market volatility; and focus on the long term. That's a prescription for successful investing.