Investing can be a complicated endeavor for even the most studious individual investor. As a matter of fact, even big financial institutions like Vanguard get confused from time to time. The fund company recently reported on its Web site that in eight of the nine bear markets since 1960, the S&P 500 typically made most of those gains back within the following year.There's just one problem: That's not true, as the Wall Street Journal noted yesterday morning.
What Vanguard meant to say was that if the S&P lost 25 percent in a bear market, it would usually rally 25 percent within a year. But that doesn't bring the index back to where it started. The math doesn't work out. Consider if the S&P were at an even 1000, and lost 25 percent; that brings it down to 750. But a gain of 25 percent from a level of 750 only brings the index back up to 937.50. To get back to 1000 would require a gain of 33 percent.
Unfortunately for Vanguard, the S&P hasn't shown that kind of resiliency. Only two of the eight bear markets that Vanguard reported as getting back to whole within a year actually made it that far.
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