The general consensus in the media has been that the 2000s was a “lost decade” for stocks, with major indices like the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all in the red since Jan. 1, 2000. But in an interesting piece for CBS Money Watch, Allan Roth says the reality wasn’t as bleak as you may think.

“If you look at inflation-adjusted returns,” Roth says, “this wasn’t even the worst decade of the last four. If you diversified, kept costs low, and rebalanced your portfolio, odds are you actually did just fine.”

Roth makes a couple of main points about why looking at index returns is misleading:

• The Dow, S&P, and Nasdaq returns do not include dividend payouts, which usually add a couple of percentage points to your return every year;
• Even broad indices like the S&P and Nasdaq include only a portion of all stocks in the U.S. markets, and they don’t include stocks in foreign markets;
• Few investors have all-stock portfolios; if you look at the S&P return and draw a conclusion about what kind of decade it was for investors, you are thus only looking at one piece of the pie.

How did markets really do over the past decade? Not well, Roth says — but not as badly as the major indices would lead you to believe.

“When calculated correctly, U.S. stocks almost broke even, as measured by the Vanguard Total Stock Index Fund (VTSMX). International stocks did much better, increasing 2.3 percent annually (26 percent overall), as shown by the Vanguard Total International Stock Index Fund (VGTSX),” Roth says. “And bonds had a downright good decade, increasing 6.2 percent annually or 83 percent over the 10-year period, measured by the Vanguard Total Bond Index Fund (VBMFX). These numbers combine the index returns and their underlying stocks’ dividends and net out the costs charged by the funds.”

If your portfolio had included alternative asset classes like precious metals or real estate investment trusts, you’d likely have done even better, Roth adds.

Another key point: Roth says that investors who practiced solid asset allocation and rebalancing would have also added to their returns. If you held the three total index funds in a portfolio that was 60% stocks (two-thirds from the U.S.) and 40% bonds, you’d have earned 3.13% per year for the decade; if you rebalanced to those targets annually, you’d have averaged 3.52% per year, Roth says. And, if you used dollar cost averaging to invest the same amount each year, sticking to that 60%/40% breakdown, you’d have earned 4.57% per year, he says.

Unfortunately, Roth says, few investors realized those returns because of two factors: fees, and emotions that led them to buy high and sell low.