By Scott Burns

Do investments and saving matter?

It’s a good question for any Christmas Day, but lots of people have particular reason to ask that question now. Barring a long awaited visit from the Tooth Fairy, it is likely the S&P 500 index— the index that represents about 74 percent of U.S. equity market value— will close the year at a loss or near loss.

This is not a new experience. If anything, it is oppressively familiar. The index, today, is barely above the 1,200 level it first reached in December 1998— all of 13 years ago. It is nearly 20 percent below its March 2000 peak of 1,500.

We’re in a new age of Endurance Investing. When Morningstar publishes the Ibbotson returns data early next year, it will be abundantly clear: the current period is close to beating the Great Depression as the longest period of negative return our stock market has ever experienced, measured in nominal dollars.

If we look deeper and measure real, inflation-adjusted returns, the current period is already as bad as the Great Depression. And it is in gunning distance of beating the 15-year loss record from 1968 to 1982. (The inflation adjusted figures include reinvested dividends.)

Should we give up? Is it time to pack it in?

No. History says that endurance investing pays.

If you gave up in the 70s— and millions of people did, putting the entire mutual fund industry into net redemption— you missed the bull market of the 80s and 90s. That’s when a simple investment in large domestic stocks provided a real annualized return of 13.3 percent and a pre-inflation-adjustment return of 17.9 percent. That return would grow $1,000 into $2,000 in 4 years and $32,000 in 20 years. Viewed in terms of a nest egg, it will turn savings equal to one year of income into 16 years of income in 16 years and 32 years of income in 20 years. Either way, that would be more than enough for most people to retire.

If you endured the 70s, the next two decades were a walk in the park.

Will we need to endure in 2012? See your local entrails reader.

What we do know is that whatever the stock market returns in the future, we can invest a lot more efficiently today than we could in 1970 or 1980. This means we get to keep more of the return on our money— when it does, finally, earn a return. Here are some of the great strides that benefited all of us:

• Small savers no longer ride at the back of the bus. In the late 1960s yields at thrift institutions and banks were regulated and limited. As a consequence, most people got lower yields on their CDs than a big saver could get on a U.S. Treasury obligation. One Boston economist was so annoyed about the gap that he titled a paper “Shafting the Small Saver.” The paper estimated how much regulation cost small savers. The gap between what small savers could earn and what big savers earned spawned the first generation of money market mutual funds, providing even the most cautious saver with access to higher yields. The same event also opened the door to no-load mutual funds.
• Brokerage commissions have almost disappeared. Until the mid-1970s brokerage commissions for the purchase or sale of common stocks were regulated, resulting in very high costs for individual investors. High commissions also prevailed in the sale of mutual funds. These often had 8.5 percent front-end commissions. Today a self-directed investor can buy individual stocks at nominal commission cost. More important, the same investor can also buy mutual funds with no commission at all.
• Index funds and exchange traded funds are now abundant. In 1970, according to Investment Company Institute data, there were only 361 mutual funds with only $47.6 billion in assets. Most were common stock funds and 40 percent were contractual accumulation accounts where the saver often experienced no accumulation even after dozens of payments. Low-cost, low-expense index funds did not exist. Today there are hundreds of index funds. We can save for our futures at about 1/10 of the cost most investors faced in the 70s and we can get better results than about 70 percent of all managed funds.

Yes, it’s hard to cheer for the idea of losing money at the greatest cost efficiency in history. But there will be a day, hopefully soon, when endurance and patience are rewarded.