The first score of the century is in the history books. It was the best and worst of times, but in the reverse order. The lost decade was followed by the longest bull market in history. Overall, it was not so good for U.S. stocks, downright bad for international stocks and outstanding for high-quality bonds.

Let’s walk through the first 20 years of the new millennium and the lessons for the next 20 years.

Those 20 years came in as follows, based on total returns including dividend reinvestments:

These results use the broadest index funds, after fees. I used the more expensive investor class Vanguard funds as 20 years of history is available only for these funds. Actual returns would have been a tad better using lower-fee Admiral funds or ETF share classes when they became available.

From the dawning of the new age economy to the bursting of the dot-com bubble

The century began with the widely held belief that we were in a new era where cash-flow no longer mattered. Internet companies with little revenue and huge losses had valuations in the tens of billions of dollars. Critics of those valuations were scolded for their old-school thinking and failure to understand that things were different in the new economy. U.S. stocks peaked on March 24, 2000, and quickly plunged by nearly 50%. Many thought this would be the most painful period of the century, but it was only the first plunge of that decade.

Clients came to me bewildered. How could they have lost over 70% of their stock portfolio when they owned several mutual funds they thought were diversified? The answer was obvious; example were the several Janus mutual funds that all owned the same dot com companies. A total-stock index fund was far more diversified. High-quality bonds, REITs and precious metals and mining stocks had low to negative correlations and did well during this bear market. The plunge ended in in October 2002, and though U.S. and international stocks had each lost about 49% of their value, high-quality bonds helped ease the pain, gaining 28%.