The joys of being in the crowd

check-out-the-new-york-times-cover-from-the-day-after-black-monday--this-is-what-panic-looks-likeFor those who like to commemorate unfortunate events, next Monday is the 28th anniversary of the crash of 1987, which sent the Dow Jones industrial average tumbling 22.61% in a single day. A similar drop today would push the Dow down 3,862 points.

Since then, the stock market — measured this time by the Standard and Poor’s 500 stock index — has gained an average 10.61% a year, including reinvested dividends, according to Howard Silverblatt, god of S&P Dow Jones indexes. What’s particularly interesting, though, is what would have happened if you had owned individual stocks, rather than an index-tracking fund.

For example, let’s suppose you’d owned American International Group, one of the 289 surviving members of the S&P 500 from October 1987. You would have lost an average 1.02% a year, including reinvested dividends. Newmont Mining? Down 0.43% a year since 1987. Citigroup has gained 5.6%.

Naturally, some stocks have fared quite well since then. UnitedHealth Group has soared 27.54% a year since the Big One. But clearly, choosing among the largest stocks of the time meant that you had the possibility of very different outcomes.

The average surviving U.S. diversified stock fund has gained 9.28% since The Big One, which isn’t great compared to the S&P 500. None gained more than 15%. On the other hand, no funds have actually lost money since Black Monday. Nor have any gone to zero, a la Enron. While many people love to tout performance for investing in stock funds, the real benefit is the (relative) safety of a diversified portfolio.

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