XEQT and the Lost Decade: What Happens When Global Markets Go Nowhere for 10 Years

I was scrolling through my news feed a few months ago when a headline stopped me cold: “Are We Heading Into the Next Lost Decade?”

I clicked. I read. And for about twenty minutes, I felt that familiar tightness in my chest – the one that shows up when you start doing mental math on what happens if your entire portfolio goes nowhere for ten years. I had been investing consistently into XEQT for years at that point. The idea that all of that discipline, all of those automatic contributions, all of that boring patience could produce… nothing? It was genuinely unsettling.

But then I did what I always do when investing anxiety hits. I stopped reading headlines and started reading history. And what I found completely changed how I think about lost decades – not as a nightmare scenario, but as a mathematical reality that XEQT is specifically designed to handle.

This post is not about how to feel better during a flat market. I already wrote about the psychology of flat markets separately. This post is about the math and strategy – the actual numbers behind lost decades, why global diversification neutralizes them, and why dollar-cost averaging through a lost decade might be one of the best things that ever happens to your portfolio.

1. What Is a Lost Decade?

A “lost decade” is a period of roughly ten years during which a stock market delivers zero or negative total returns. Not a brief crash that recovers in a year or two – a prolonged, grinding stretch where investors who put money in at the start ended up with the same amount, or less, a full decade later.

It sounds like a theoretical worst-case scenario. It is not. It has happened multiple times in modern financial history, in some of the largest and most sophisticated markets on Earth.

Here are the most notable examples:

These are not obscure markets in tiny countries. These are the United States, Japan, Europe, and Canada – the backbone of the global economy. Lost decades are not anomalies. They are a recurring feature of equity markets.

The question is not whether another lost decade will happen. It almost certainly will, somewhere. The question is whether your portfolio is built to survive it.

2. The Japan Nightmare Scenario

If you want to understand the worst-case scenario for a single-market investor, you need to understand Japan.

In the late 1980s, Japan was the hottest economy on the planet. The Nikkei 225 index had risen from about 10,000 in 1983 to nearly 39,000 by December 1989. Japanese real estate was so expensive that the land beneath the Imperial Palace in Tokyo was famously said to be worth more than the entire state of California. Japanese companies were buying up American landmarks. Investors everywhere believed that Japan was the future.

Then it all came crashing down.

The Bank of Japan raised interest rates to cool the overheating economy, and the bubble burst spectacularly. The Nikkei plummeted. Real estate collapsed. Banks were drowning in bad loans. And what followed was not a quick recovery – it was a multi-decade stagnation that earned the name “The Lost Decades” (plural, because it lasted far longer than ten years).

Here is what the timeline looked like:

• December 1989: Nikkei peaks at 38,957
• 2003: Nikkei bottoms near 7,600 – an 80% decline from the peak
• 2012: Nikkei still hovering around 8,000-10,000, more than two decades later
• February 2024: Nikkei finally surpasses its 1989 high – 35 years later

Let that sink in. If you had invested everything in the Japanese stock market at its peak in 1989 and simply held, you would have waited 35 years just to break even. No dividends reinvested could have fully closed that gap in a reasonable timeframe.

This is the nightmare scenario that single-market investors never think can happen to them. Japanese investors in 1989 were just as confident as American investors are today. The economy was booming, companies were dominant, and the prevailing wisdom was that Japan would lead the world for decades.

They were wrong. And an entire generation of Japanese investors paid the price.

3. The US Lost Decade: 2000-2010

Americans do not have to look to Japan for a lost decade example. They had their own, and it was brutal.

In March 2000, the S&P 500 peaked at about 1,527, riding the euphoria of the dot-com bubble. Technology stocks were trading at absurd valuations. Companies with no revenue and no profits were worth billions. Everyone was a genius, and “this time it’s different” was the mantra.

Here is what followed:

• March 2000: S&P 500 peaks at ~1,527
• October 2002: S&P 500 bottoms at ~776 after the dot-com crash (a 49% decline)
• October 2007: S&P 500 recovers to ~1,565 (seven years to get back to even)
• March 2009: S&P 500 crashes to ~676 during the financial crisis (a 57% decline from the 2007 peak)
• March 2010: S&P 500 at ~1,169 – still below its March 2000 level

If you had invested $10,000 in the S&P 500 in January 2000 and held for a full decade, you would have had roughly $9,000 by January 2010. A decade of patience. A decade of holding through two of the worst crashes in modern history. And your reward was losing money.

Millions of American investors gave up during this period. They sold at the bottom. They moved to bonds. They swore off stocks forever. And in doing so, they missed the 2010-2020 decade that delivered an annualized return of roughly 13.6% on the S&P 500.

The investors who quit during the lost decade missed one of the greatest wealth-building periods in American market history.

4. Why XEQT Is Built to Survive Lost Decades

Here is the critical insight that most investors miss: lost decades are single-market events. They happen to one country or one region. They almost never happen to the entire global stock market simultaneously.

And this is exactly why XEQT exists.

XEQT holds four underlying iShares index funds that spread your money across the entire investable world:

• ~47% US equities (via ITOT)
• ~24% Canadian equities (via XIC)
• ~24% International developed markets (via XEF – Japan, UK, Europe, Australia)
• ~5% Emerging markets (via IEMG – China, India, Taiwan, Brazil)

This geographic diversification means that when one region is suffering through a lost decade, other regions are often thriving. Let me show you the math.

What Happened During the US “Lost Decade” (2000-2010)?

While the US was going nowhere, the rest of the world was doing quite well:

Look at that table carefully. While the US lost nearly half its value in Canadian dollar terms, Canada returned 5.6% annually, and emerging markets returned an incredible 7.8% annually. A globally diversified portfolio similar to XEQT would have turned your $10,000 into roughly $12,800 – not spectacular, but a far cry from the devastating loss suffered by US-only investors.

And here is the kicker: during the US lost decade, nobody knew in advance that Canada and emerging markets would outperform. The conventional wisdom at the time was that the US was the only market that mattered. Investors who had put everything in the S&P 500 because of its dominance in the 1990s got punished for that concentration.

Now flip to the 2010s. The US came roaring back with ~16% annualized returns, while Canada managed only ~6% and emerging markets returned ~4%. The leadership completely reversed. If you had moved all your money into emerging markets after the 2000s because they were the “winners,” you would have been sorely disappointed.

This is exactly why XEQT’s approach of owning everything, all the time, works. You do not need to predict which region will have a lost decade and which will boom. You own them all, and XEQT’s automatic rebalancing systematically buys more of what is cheap and trims what is expensive.

For a deeper look at exactly what you own inside XEQT, check out the full XEQT holdings breakdown.

5. The Secret Weapon: Dollar-Cost Averaging Through a Lost Decade

Here is where this post takes a surprising turn. Not only does XEQT’s global diversification protect you from single-market lost decades – but if you are dollar-cost averaging during a flat or declining period, you are actually setting yourself up for enormous gains.

This is the part that most people do not understand, and it is the most important math in this entire post.

Why Flat Markets Are Accumulation Goldmines

When the market is flat or falling, each of your regular contributions buys more units at lower prices. You are accumulating shares at a discount. When the market eventually recovers – and historically, it always has – all of those discounted shares participate fully in the upside.

Think of it this way: would you rather buy groceries when prices are high or when they are on sale? Obviously, you want the sale. A lost decade is a prolonged sale on stocks. The only investors who get hurt are the ones who stop buying.

The Math: DCA Through a Flat Market vs. a Rising Market

Let me show you a simplified example to make this concrete. Two investors each contribute $500 per month for 10 years. Investor A invests during a flat market (0% annualized return for 10 years, followed by 10% annual growth for the next 10 years). Investor B invests during a steadily rising market (8% annualized return for all 20 years). Both invest the same total amount: $120,000 over 20 years.

Read that carefully. Investor A – the one who suffered through a lost decade – ends up with MORE money after 20 years than Investor B, who enjoyed steady returns the entire time.

How is that possible? Because Investor A spent ten years buying units at depressed prices. When the recovery hit, those cheap units grew explosively. Investor B was buying units at progressively higher prices the entire time, so their money had less room to compound.

This is the mathematical magic of DCA through flat periods. It feels terrible in real time – you are contributing money and seeing no growth. But you are loading up on shares at bargain prices, and those shares become the engine of your future wealth.

To play with different contribution amounts and see how this works with your own numbers, try our compound interest calculator.

6. A Deeper Look: Year-by-Year Accumulation During a Lost Decade

Let me break this down even further. Here is what happens to a DCA investor putting $500 per month into a market that is flat for 10 years. I am using a simplified model where the market drops, recovers, drops again, and ends up roughly where it started – mimicking the actual pattern of the US 2000-2010 lost decade.

After ten years, the market has gone essentially nowhere – it is roughly back to where it started. An investor who put a lump sum in at the beginning would have broken even at best. But our DCA investor has accumulated 6,911 units while contributing $60,000, and their portfolio is worth $60,669. Not much gain in dollar terms – but look at the unit count.

Here is the payoff. If the market then returns a modest 8% per year for the next five years (which is below the historical average for global equities), those 6,911 units grow dramatically:

• After year 11: ~$71,522
• After year 12: ~$83,284
• After year 13: ~$96,067
• After year 15: ~$126,500+

The DCA investor who was “going nowhere” for a decade is suddenly seeing explosive portfolio growth. Every cheap unit they bought during the lost decade is now compounding upward. The lost decade was not wasted time. It was loading time.

7. Could XEQT Itself Have a Lost Decade?

This is the question that really keeps people up at night. Japan had a lost decade. The US had a lost decade. Could the entire global stock market – and by extension, XEQT – have one?

Let me be honest: it is theoretically possible. But it would require something unprecedented in modern financial history.

For XEQT to have a true lost decade, you would need every major region in the world to stagnate simultaneously for an extended period. The US, Canada, Europe, Japan, the UK, China, India, Brazil, Australia, and dozens of other countries would all need to deliver zero returns at the same time, for roughly a decade.

Let me explain why this is extraordinarily unlikely.

Different economies run on different cycles

The US economy is driven by technology and consumer spending. Canada is driven by financials, energy, and real estate. Europe has a mix of manufacturing, luxury goods, and financial services. Emerging markets are powered by industrialization, demographics, and commodity exports. These economic engines do not synchronize perfectly. When oil prices crash and hurt Canada, they benefit oil-importing nations like Japan and India. When US tech stocks deflate, capital often flows into value-oriented European stocks.

Historical evidence supports this

Looking at the data from the geographic diversification breakdown we publish on this blog, there has never been a decade where all major regions simultaneously delivered negative returns. Even during the worst global events – the 2008 financial crisis, COVID-19, the stagflation of the 1970s – different regions recovered at different speeds and some continued to deliver positive returns over the full decade.

But let us run the worst case anyway

Say the entire global market returns 0% for a decade. What happens to a DCA investor putting $500 per month into XEQT?

• They contribute $60,000 over 10 years
• They accumulate a massive number of units at depressed prices
• When the market eventually recovers (and remember, global GDP has grown in every single decade in recorded history), those units explode in value

Even in the absolute worst case, the DCA investor is not destroyed. They are coiled and ready for the recovery. The only investor who truly loses is the one who stops buying, or worse, sells at the bottom.

Compare this to holding a single-country fund. If that country happens to be the one experiencing the lost decade – like Japan in 1989 or the US in 2000 – you have no diversification to soften the blow and no other regions pulling your portfolio forward.

This is not about predicting which country will struggle next. It is about building a portfolio that can absorb the blow no matter where it comes from. That is what XEQT does.

And if you are worried about market timing in general, the data consistently shows that time in the market beats timing the market – especially over the multi-decade horizons that lost decades operate on.

8. The Rotation Nobody Predicts

One of the most important patterns in global markets is that leadership rotates, and it rotates in ways that nobody predicts in advance. To drive this home, here is a summary of which region “won” each decade:

• 1980s: International developed markets and emerging markets crushed the US
• 1990s: The US dominated, riding the tech boom; Japan collapsed
• 2000s: Emerging markets and Canada led; the US was the worst major market
• 2010s: The US roared back with tech dominance; emerging markets lagged
• 2020s (so far): The US has led again, but with increasing volatility and geopolitical uncertainty

Every single decade, the “obvious” bet turned out wrong. Investors who piled into the 1980s winners (international markets) underperformed in the 1990s. Investors who piled into the 1990s winner (US tech) got destroyed in the 2000s. Investors who chased the 2000s winners (emerging markets, commodities) missed the US tech resurgence of the 2010s.

XEQT investors do not need to predict the next rotation. They own all the regions, all the time. When one region underperforms, another picks up the slack. When leadership shifts, XEQT is already positioned because it holds everything.

This is the unglamorous but deeply effective truth about global diversification: you will never have the “best” portfolio in any given year. But you will almost certainly avoid the worst, and over decades, that avoidance of catastrophic concentration is what builds real, lasting wealth.

The Bottom Line

Lost decades are real. They have happened to Japan, the United States, Europe, and Canada. They will happen again, somewhere, to some market. This is not a scare tactic – it is financial history.

But here is what that history also tells us:

• Lost decades are single-market events. A globally diversified portfolio has never experienced a true lost decade where all regions simultaneously returned nothing for ten years.
• Global diversification transforms a catastrophe into a manageable drag. During the US lost decade of 2000-2010, a globally diversified portfolio still delivered positive returns – not exciting, but positive. Compare that to the devastating losses suffered by US-only investors.
• Dollar-cost averaging through a flat or declining market is an accumulation opportunity, not a failure. The math is clear: buying more units at lower prices sets you up for outsized gains when the recovery arrives. The DCA investor who “suffered” through a lost decade often comes out ahead of the steady-market investor over a 20-year period.
• XEQT is specifically built for this. Its four underlying ETFs spread your money across the entire investable world. Its automatic rebalancing buys cheap regions and trims expensive ones. Its design ensures you are always positioned to capture the recovery, wherever it comes from.

When I read that scary headline about “the next lost decade,” my initial reaction was fear. My informed reaction, after studying the data, was something closer to calm indifference. Not because I do not think it can happen – I think it almost certainly will, somewhere – but because I know my portfolio is built to handle it.

If a single country has a lost decade, XEQT absorbs the blow with diversification from 48 other countries. If I keep dollar-cost averaging through it, I accumulate shares at prices I will look back on as bargains. And if the recovery comes – which it always has, for every lost decade in history – I am positioned to benefit fully.

The lost decade is not the enemy of the XEQT investor. Quitting during the lost decade is.

Keep buying. Keep holding. Own the whole world. Let time and diversification do what they have always done.

Disclosure: This post contains referral links. I may receive compensation if you sign up through these links, but this does not affect my honest assessment. I genuinely believe XEQT is an excellent choice for Canadian investors seeking simple, low-cost, globally diversified growth. Historical returns do not guarantee future results. This is not financial advice.