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<p>Indeed, those were bad economic times for many. Unemployment was around 10%, while it’s under 5% now. And inflation was running well into the double-digits. Mortgage rates were running around 18%. </p>
<p>For those who were employed and did have money to invest (e.g., in 401-k or 403-b plans), the stock market looked like a very bad bet back then. The Dow-Jones Index had been stagnant for decades. It seemed like there was some insurmountable psychological barrier at 1,000. It had first hit 1,000 back in the mid 60s, fell back, hit it again and again only to fall back time and again. It wasn’t till mid 80s that it really definitively broke through that psychological barrier.</p>
<p>I remember talking to people making decisions about where to put 401k or 403b funds. The stock market didn’t look like a good place in the very early 80s, given the history of the two previous decades and double-digit inflation. Money market funds paying close to 20% at times looked like the safest way to at least stay close to even with inflation.</p>
<p>Who knew then that stocks would take off…and now the Dow has broken through the latest “psychological barrier” of 12,000.</p>
<p>For technical reasons, the S&P 500 is a more representative index (and it’s easy to buy a “basket of the S&P 500 index” since there are so many index funds based on it), but the Dow certainly gives a handy and readily available, crude but highly visible metric for what has happened to the stock market.</p>
<p>Indeed, on reading the article more carefully and looking at the figures, I should correct what I wrote above. </p>
<p>The stock market has done far more than “keep pace with college tuitions”–it has risen at roughly three times the rate of tuition increases!</p>