We're entering a new year and leaving behind a decade in which your so-called investments took a brutal beating. As we point out in our book The Big Gamble, while you may have believed that you were investing your money, clearly the results have proven that you were only speculating.  So many people gambled and lost, some economists are calling the 90s the "lost decade" for stocks.

The S&P 500 average is lower than a decade ago. Dividend yields may have brought some of the more fortunate closer to a break-even point, (the Vanguard Total Stock Market Index Fund lists the average annual returns of 0.18% for the ten years through the end of November), but we all took a hit with inflation registering a couple of percentage points per year.

Maybe we're viewing this through 20/20 hindsight, but these losses should not have been a great surprise considering that stock valuations were at an unsustainable and historical peak at the beginning of the 90s.  It was fertile ground for herd mentality to trump rational thought—everyone was buying into the notion that stocks were the best long-term investment because the meme was that over any given thirty-year period stocks do better than any other asset class. 

That kind of thinking works when there's a guarantee that the future will always be like the past . . . which is to say, never.  Besides, when everyone believes that ABC stock is the best long-term investment on the market, consider that a red flag.  What happens when demand is high? The price gets higher. And when you get enough people to agree on the same investment strategy, odds are good that they're wrong.

So, we've all learned a hard lesson from recent experience.  But is this the time to believe that the worst is over or that it's time to throw caution to the wind and forge ahead? Or is it time to be extra cautious now that we're already hearing New Year predictions of good things to come and theories about why it's time to get into the market.

Some of those prognosticators will rationalize that the near future will be a good time for stocks because there will be a capital shortage from every source except the stock market.  In their view, the stock market will be the only game in town. Why? They reason that during the past decade, corporations have had ready access to cash from banks, the bond markets or private-equity companies, so they weren't focused on trying to make shareholders happy.

They contend that when capital is in shorter supply, corporations will be forced to look to shareholders for the cash needed for expansion, or research and development. By offering the public better prices and higher dividends, the equity markets will pick up speed and the cycle will continue.

We're also being told that inflation will be the next big indicator that a thriving stock market is about to re-emerge. If central banks keep printing money, eventually inflation, or even hyperinflation is inevitable.  And, as forecasters reminds us, that's good for the equity markets.

With inflation hiking the cost of everything, the major multinational companies on the big indexes can take a joy ride with their prices. That means higher corporate profits as well as bigger shareholder dividends. Shareholders will switch their holdings from the bond markets into equities and be better able to keep up with inflation.

Using their crystal balls to gaze into the past, the seers will remind us that as a species we've survived famines, droughts, locusts and wars, so why can't we overcome a few questionable Wall Street deals, the deficits, and the mortgage meltdown?

Short capital supply, inflation, overcoming disasters of days gone by . . .all of this sounds like a rallying cry to jump on the Wall Street wagon. We say, not so fast.

We agree that there is always a chance that growth in this new decade will come to fruition. And we're all for optimism.  After all, technology continues to be a main force behind innovation and progress and that's not about to slow down. In fact, with a growing population of tech-savvy youth, it's probably going to speed up. That will provide opportunities for true speculation, the kind that provides jobs and expands the economy.

The point we wish to make is this: don't let the heady and rosy predictions of things to come cause you to lose sight of the importance of making prudent money decisions. Do your homework. Read up on what caused the economic mess we're in now.

In our book, The Big Gamble: Are You Investing or Speculating we give you some critical insight and perspective on the difference between investing, speculation and gambling to help you make informed and rational decisions about where to put your hard-earned money. You’ll read about how economic bubbles form, and learn about an “early warning system” you can use to dodge the next one . . .  or else wisely capitalize on it.

As we begin this New Year and a new decade, take it as opportunity to avoid mistakes of the past.  We're wishing you the best of luck in making wise decisions with your money.