A Better Decade for Your Portfolio?

There’s an old saying: Don’t wish your life away. It’s the kind of thing a parent says to a child who wishes good things like Christmas would come faster.

But investors can be excused for looking forward to the end of a decade that hasn’t served them very well. The average stock has lost money over the past 10 years, thanks to the dot-com collapse early in the decade and the financial crisis of the past few years.

There may be a silver lining, though. After a bad decade, stocks tend to do exceedingly well in the next decade, according to an analysis by Madison Investment Advisors of Wisconsin.

Madison looked at 11 10-year periods when the Standard & Poor’s 500 produced sub-par results — returns averaging less than 6% a year. The most recent 10-year period with complete results, 1999 through 2008, was worse than the 11 studied, with average annual returns of negative 1.38%.

Of course, it’s way too soon to know how the subsequent 10 years will be. Will hammed-down firms like Ford (Stock Quote: F) recover? Will big winners of the past like Google (Stock Quote: GOOG) and Berkshire Hathaway (Stock Quote: BRK.A) be stars again? We’ll have to stay tuned to find out.

But previous results are encouraging. On average, the substandard decades produced gains of just 2.52% a year. But the average decade that followed saw average annual returns of 13.4%. Gains averaged 14.82% in the 20 years following each bad decade.

Even more encouraging, the rebound decades have generally been doing better and better, and in a number of cases the rebound was especially strong after decades that were especially bad.

The smallest rebound came in the 10 years beginning in 1936, when annual returns averaged 8.42%. The 1926-1935 period saw annual gains just barely bad enough to make the list, averaging 5.86% a year.