Bogleheads

[denismurf]

As I recall, the last period of stagflation in the US was early 70's. Were any investment strategies successful under those conditions? -- Denis

[DocHolliday]

I am far from an expert but I am doing what the experts are doing.

Nothing.

I keep on investing the same no matter what is going on around me. Money is directed into the 401K the same all year. Things get adjusted accordingly at the annual rebalance.

[stratton]

[Taylor Larimore]

Hi Denis:

Quote:

As I recall, the last period of stagflation in the US was early 70's. Were any investment strategies successful under those conditions?

A simple domestic portfolio consisting of 67% S&P 500 stocks; 28% long-term corporate bonds; and 5% T-Bills had these returns in the 70s:

1970 3.9%
1971 14.4%
1972 10.0%
1973 -13.5%
1974 -15.1%
1975 34.9%
1976 27.3%
1977 2.1%
1978 8.4%
1979 21.3%

(Source: "Underperforming the Market by John Merrill")

Best wishes.
Taylor

[EmergDoc]

Gold worked great during stagflation...of course it has a real return of zero overall and it is considered pretty highly valued right now so I'm not sure I'd buy any. We didn't have US TIPS during stagflation, but I think they would have done pretty well if we did. Also, keep in mind that it certainly is not a given that we are in stagflation or soon will enter stagflation, so any investing strategies designed for that type of environment could easily backfire if it turns out not to be the case.

Keep in mind when considering my market timing advice that I'm an absolutely horrible market timer.
_________________
1) Invest you must 2) Time is your friend 3) Impulse is your enemy
4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

[Taylor Larimore]

[nisiprius]

If you seriously think that we're heading for a prolonged period in which stocks are going to "perform" like they did during the seventies, and that no other asset class is going to do better, then an investment strategy that will work is:

a) Quit writing in 9% on those retirement worksheets and start writing in 6%;

b) Reduce expectations for one's personal portfolio's growth;

c) Increase one's savings rate.
_________________
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

[cdelena]

[retired at 48]

I was investing during the 1970's. Money market funds did quite well, reaching yields of about 13% My mother would say "boy I sure like those Fidelity 13% money market funds." I could not convince her of concepts like duration and locking in longer terms. Many seniors lost that big income stream when mm rates came back down.

Retired at 48

[MWCA]

Save more and keep working. Just dont retire at the start of a prolonged session

[DavidA]

Taylor's breakdown is extremely helpful. Remembering to be diversified seems to be the key in all markets.

My personal perspective (and just because I think it doesn't mean that I am wrong ) is that if stagflation does occur TIPS will be "helpful" to my overall portfolio. I think there are many people frustrated with TIPS but they are doing what they are supposed to be doing - I don't hold them because I expect a huge return year-in-and-year-out. They are low yielding bonds that give me an edge in case we see major inflation.

[Bulldog Bond]

Make sure you are not in an adjustable rate mortgage. I do not think they were available in the '70's. Obviously an ARM would be a killer in a repeat of the 70's inflation scenario.

A heathy TIPS allotment would be a very good thing.

Short term CD's worked about as well as anything else in those days. I remember having 1Yr CD's with rates in the 13-17% range.

[Route 99]

[Bulldog Bond]

I should have added that even "low rate" TIPS would have been a good thing back then.
Merrill's portfolio results [that Taylor provided] had an annualized rerturn of 8.08% over the decade.
Inflation, as measured by December-December CPI-U change, had an annualized effect of -7.26% over the decade.

Year , Portfolio , Inflation
1970 , 3.9 , 5.6
1971 , 14.4 , 3.3
1972 , 10 , 3.4
1973 , -15 , 8.7
1974 , -15.1 , 12.3
1975 , 34.9 , 6.9
1976 , 27.3 , 4.9
1977 , 2.1 , 6.7
1978 , 8.4 , 9
1979 , 21.3 , 13.3

The portfolio returned a real rate of about 0.72%.
Those "poor" 1.0% iBonds would not look too shabby by comparison.

[preserve]

[retired at 48]

[market timer]

If you think inflation is going to pick up, you should be selling nominal US Treasury bonds.

[fishnskiguy]

For those taking solace in Taylor's post on the returns during the seventies, a word of caution.

Taylor's data indicates that $1000 invested in his mix of stocks and bonds grew to $1812 by the end of the decade. The problem is, the CPI went from 37.8 to 77.8 during that time, so the $1812 ending value is only worth $880 in 1970 dollars.

The seventies were the pits if you did not own a home in a major metropolitan area, or own a healthy chunk of gold stocks.

No, I am not pitching real estate or gold funds. If we do indeed enter a period of stagflation, I doubt if either of these would solve your problems. Save more, consume less is probably the best solution.

Chris
_________________
Trident D-5 SLBM- "When you care enough to send the very best."

[Bulldog Bond]

I went back and checked my numbers and found I made a transcription error. The portfolio returned -13.5% [not -15%] in 1973. That boosted the annualized return over the decade to 8.27%, with a corresponding Real Return of 0.91%. The 1.0% iBonds would have still looked good.

Note to fishskiguy: If you check your numbers I think you will find that $1000 in the portfolio at the start of 1970 would have grown to $2214 by the end of 1979. In "Dec 1969" dollars that would be worth about $1088 in Dec 1979.

Bulldog

[retired at 48]

[Zander]

[fishnskiguy]

Hi Bulldog Bond,

You are correct. I re-ran the numbers. Taylor's fund mix provided $88 real return over a decade for every $1000 invested.

Now all we have to do is define "The Pits!"

Chris
_________________
Trident D-5 SLBM- "When you care enough to send the very best."

[cato]

[retired at 48]

[market timer]

[market timer]

[Henni]

what portion (or size of risk) in nominal US Treasury bonds does VBMFX or VUSTX hold ? within the vanguard indexes, apart from VIPSX (TIPS), is there a preferred bond mix considering comments in this thread ?