Investing in the 80's when CD rates were 17%?

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silverskates
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Investing in the 80's when CD rates were 17%?

Post by silverskates »

Did anyone here avoid the stock market altogether when CD's were at historic highs (17%)? Over Thanksgiving, a retired (70 something) relative of mine was sharing how he is jealous of his good friend who has always avoided the stock market and instead invested only in CD's...even to this day. Obviously, CD returns are not what they used to be but it sounds like there were pretty great back in the 80's. The jealousy is due to the fact that my relative was always full of anxiety as he watched the market go up and down while his friend was getting huge returns in CD's with no stress. Now the friend is way better off financially and this relative attributes it all to these great CD rates.

I've never seen any one on here refer to the great CD returns they got in the 80's so just curious what people's thoughts are.
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Re: Investing in the 80's when CD rates were 17%?

Post by livesoft »

Sure, my IRA was invested in CDs at first. GNMA funds had a nice yield, too, as did Vanguard Prime Money Market.

Of course, inflation was just as high.
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Re: Investing in the 80's when CD rates were 17%?

Post by Wagnerjb »

Well, 17% interest rates sure sound great. Until you realize that inflation was 13%. Assume that you pay 40% marginal tax on that interest income and see what your real return looks like. :(
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Re: Investing in the 80's when CD rates were 17%?

Post by 123 »

I remember driving an elderly aunt around town one day around 1980 to do her banking. At the time bank "money market" accounts had recently been introduced with higher interest rates. At the time banks/S&Ls were offering a promotion bonus of $100 to open an account with an initial deposit of $20K. In about 2 hours she opened promotional accounts at 4 banks (2 at the same intersection). She wasn't a believer in the stock market and invested a lot in hospital revenue bonds at the time. She said that when she saw the promotional offers in the newspaper she was glad she had available funds.

She earned $400 for maybe 2 hours of minimum effort (a significant sum in those days).
Last edited by 123 on Sat Nov 26, 2016 2:12 pm, edited 1 time in total.
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Re: Investing in the 80's when CD rates were 17%?

Post by GoldenFinch »

My 12% 5 year CD in the 80s was my first investment. Right now I have a 2% 5 year CD.
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Re: Investing in the 80's when CD rates were 17%?

Post by countofmc »

I have a relative who started working in the 80s and saved all his money in CDs, savings accounts, and real estate only.

To this day he says the only money he puts in stocks is the "match" portion of his 401k, which he feels is "free money" and just can let that ride. He actually maxes his 401k, but the non-match portion is all put into bonds and CDs.
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Re: Investing in the 80's when CD rates were 17%?

Post by saltycaper »

Wagnerjb wrote:Well, 17% interest rates sure sound great. Until you realize that inflation was 13%. Assume that you pay 40% marginal tax on that interest income and see what your real return looks like. :(
:thumbsup Tax on inflation can be a killer. Much better if you can get, say, 3% real through 5% nominal with 2% inflation than through 15% nominal with 12% inflation.

I'm a big fan of CDs in lieu of bonds, but they're no substitute for stocks.
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Re: Investing in the 80's when CD rates were 17%?

Post by Wakefield1 »

Actually inflation was 18% :!: :twisted:
There was some kind of one time bank deposit called a "Tax Saver Certificate" which I think paid 10% for a year-and had a year term-and exempted the interest you received from the income tax. There might have been a limit on how much :moneybag each customer was allowed to purchase of those certificates
I'm sure money invested in buying Exxon (or the then novel Vanguard Index Trust or whatever they called it then has done better by now. Paul Volcker?
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Re: Investing in the 80's when CD rates were 17%?

Post by Tycoon »

15.2 compounded monthly. I remember it well.
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Re: Investing in the 80's when CD rates were 17%?

Post by patrick013 »

Not saying that rates will rise so high again nor am I familiar with
the TRSY bond index this author is using, but it does look like 10
year yields won't be much more than shorter term yields if aggressive
hikes occur. And the bond index remains static.

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Re: Investing in the 80's when CD rates were 17%?

Post by Wakefield1 »

Remember "America's Utility Fund"? (Actually it wasn't too awfully bad but strangely at a time I had first heard about Vanguard and had sent for their IRA kit (IRAs were still kind of new) I was sent instead the kit for opening a Taxable account and hence I moved my fairly new IRA from the Credit Union to that Utility Fund. Did it do better or worse than Vanguard's utility fund? I don't know. A few years later I did move the IRA to Vanguard. I think all of this was more than 20 years ago.
About the time that Mr. Bogle was convalescent from his heart transplant I did get a chance to talk to him and as a result have read a couple of his books,have slowly moved my investments towards his more diverse model. I hate to sell but will reinvest distributions/dividends into the funds such as the Index Funds. I knew the name John C. Bogle and that he had shaken up the mutual fund industry but did not know that the gentleman who introduced himself to me was he until he introduced himself. Truly one of the most eminent people in his profession.
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Re: Investing in the 80's when CD rates were 17%?

Post by whodidntante »

It was fun until the banks went broke because they had to pay more than they collected in interest.
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Re: Investing in the 80's when CD rates were 17%?

Post by unclescrooge »

silverskates wrote:Did anyone here avoid the stock market altogether when CD's were at historic highs (17%)? Over Thanksgiving, a retired (70 something) relative of mine was sharing how he is jealous of his good friend who has always avoided the stock market and instead invested only in CD's...even to this day. Obviously, CD returns are not what they used to be but it sounds like there were pretty great back in the 80's. The jealousy is due to the fact that my relative was always full of anxiety as he watched the market go up and down while his friend was getting huge returns in CD's with no stress. Now the friend is way better off financially and this relative attributes it all to these great CD rates.

I've never seen any one on here refer to the great CD returns they got in the 80's so just curious what people's thoughts are.
And you're positive your relative's friend had the same income, expenses and savings rate?
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Re: Investing in the 80's when CD rates were 17%?

Post by sport »

Of course, around that time, the Dow Jones average bottomed out at about 2000. Money invested in stocks, could grow tax deferred (except for dividends and mutual fund distributions). Over the long term, stocks did even better than CDs and bonds.
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Re: Investing in the 80's when CD rates were 17%?

Post by ruralavalon »

silverskates wrote:Did anyone here avoid the stock market altogether when CD's were at historic highs (17%)? . . . . .

I've never seen any one on here refer to the great CD returns they got in the 80's so just curious what people's thoughts are.
The inflation rate topped out in March 1980 at 14.76%, so the real return was 2.74% before taxes.
Last edited by ruralavalon on Sat Nov 26, 2016 3:15 pm, edited 1 time in total.
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Re: Investing in the 80's when CD rates were 17%?

Post by shelanman »

Wagnerjb wrote:Well, 17% interest rates sure sound great. Until you realize that inflation was 13%. Assume that you pay 40% marginal tax on that interest income and see what your real return looks like. :(
The magic is that the high inflation was brought under control relatively quickly, but the CD rates were fixed for a potentially-long time.

I remember in the early 00s, listening to a radio call-in show. This caller was bragging a bit about how he bought these (newfangled at the time) things called Treasury STRIPs. 30-year zero-coupon bonds paying 15% p.a. He was so giddy, because he'd put all his money in them back in the '80s, against the advice of everybody he knew, and he made out like a bandit.
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Re: Investing in the 80's when CD rates were 17%?

Post by ralph124cf »

During that time frame, I bought long term bonds with lower coupon interest rates in the secondary market. These were priced at a very large discount to yield competitive interest rates and had built-in call protection. I sold the bonds when they doubled a few years later when interest rates dropped. Another strategy at the time to lock in high rates was buying treasury strips, if you could do so in a tax sheltered account.

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Re: Investing in the 80's when CD rates were 17%?

Post by Longtermgrowth »

How about those that purchased single premium immediate annuities during that time? I've mentioned this before, and I'm not sure where I read it, but I remember reading that some insurance companies attempted to buy the annuitant out with a lump sum offer after rates became low in the following decades.
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Re: Investing in the 80's when CD rates were 17%?

Post by MoonOrb »

I can see that working out well, though, for wage earners who are used to living well below their means and doubly so for people who have some or all of the following: good health, paid off cars, and a paid off home/fixed rate mortgage.

For wage earners, there's a sort of arbitrage involved if there's any correlation between the rate of inflation and the rate of wage growth: those of us who live beneath our means keep a larger share of the wage increases, so even if other costs are going up, this is overall pretty good, right?
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Re: Investing in the 80's when CD rates were 17%?

Post by dual »

I don't know where people are getting inflation rates of 18%. Here is a table of annual inflation rates for the 1980's. The columns are the annual rates reported for each month, By 1983 the rate had dropped to ~3%
1980 13.9 14.2 14.8 14.7 14.4 14.4 13.1 12.9 12.6 12.8 12.6 12.5 13.5
1981 11.8 11.4 10.5 10.0 9.8 9.6 10.8 10.8 11.0 10.1 9.6 8.9 10.3
1982 8.4 7.6 6.8 6.5 6.7 7.1 6.4 5.9 5.0 5.1 4.6 3.8 6.2
1983 3.7 3.5 3.6 3.9 3.5 2.6 2.5 2.6 2.9 2.9 3.3 3.8 3.2
1984 4.2 4.6 4.8 4.6 4.2 4.2 4.2 4.3 4.3 4.3 4.1 3.9 4.3
1985 3.5 3.5 3.7 3.7 3.8 3.8 3.6 3.3 3.1 3.2 3.5 3.8 3.6
1986 3.9 3.1 2.3 1.6 1.5 1.8 1.6 1.6 1.8 1.5 1.3 1.1 1.9
1987 1.5 2.1 3.0 3.8 3.9 3.7 3.9 4.3 4.4 4.5 4.5 4.4 3.6
1988 4.0 3.9 3.9 3.9 3.9 4.0 4.1 4.0 4.2 4.2 4.2 4.4 4.1
1989 4.7 4.8 5.0 5.1 5.4 5.2 5.0 4.7 4.3 4.5 4.7 4.6 4.8
1990 5.2 5.3 5.2 4.7 4.4 4.7 4.8 5.6 6.2 6.3 6.3 6.1 5.4

source: http://www.usinflationcalculator.com/in ... ion-rates/

I recall buying a 14% ten year CD around 1981. Ah those were the days. I did this in an IRA so unfortunately I could not invest as much as I wanted but IIRC I was able to put in about $30K. The CD principal was $120K at maturity.
Last edited by dual on Sat Nov 26, 2016 3:40 pm, edited 1 time in total.
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Re: Investing in the 80's when CD rates were 17%?

Post by mouses »

You could buy ten year CDs at those rates back then. I'm only sorry I didn't cash out early on my existing CDs and buy new ones. So I made out somewhat, but not nearly as well as I could have.

I was really clueless. I think I thought ending a CD early was a moral failing :-)
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Re: Investing in the 80's when CD rates were 17%?

Post by sawhorse »

Alan Greenspan got out of the stock market and bought 30 year bonds at their peak. They outperformed the stock market over those 30 years.
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Re: Investing in the 80's when CD rates were 17%?

Post by silverskates »

unclescrooge wrote:
silverskates wrote:Did anyone here avoid the stock market altogether when CD's were at historic highs (17%)? Over Thanksgiving, a retired (70 something) relative of mine was sharing how he is jealous of his good friend who has always avoided the stock market and instead invested only in CD's...even to this day. Obviously, CD returns are not what they used to be but it sounds like there were pretty great back in the 80's. The jealousy is due to the fact that my relative was always full of anxiety as he watched the market go up and down while his friend was getting huge returns in CD's with no stress. Now the friend is way better off financially and this relative attributes it all to these great CD rates.

I've never seen any one on here refer to the great CD returns they got in the 80's so just curious what people's thoughts are.
And you're positive your relative's friend had the same income, expenses and savings rate?
I have no idea about income, expenses and savings rate. I do know that the guy owned his own small business but so did my relative. The way my relative is looking at it is that his friend was getting 30 year CD's (was there even such a thing?) and made 17% interest all that time. Obviously he might not be seeing things the way they actually were. No mention of inflation...he's just seeing the huge returns over all those years. Jealousy can be a very powerful thing because he's only seeing what he didn't get/have. This relative also times the market and watched the market tank in 2008 and then pulled out all his money so his return would have been higher had he road it back up. He has nothing in the market anymore.
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Re: Investing in the 80's when CD rates were 17%?

Post by dodecahedron »

Wakefield1 wrote:Actually inflation was 18% :!: :twisted:
There was some kind of one time bank deposit called a "Tax Saver Certificate" which I think paid 10% for a year-and had a year term-and exempted the interest you received from the income tax. There might have been a limit on how much :moneybag each customer was allowed to purchase of those certificates
I'm sure money invested in buying Exxon (or the then novel Vanguard Index Trust or whatever they called it then has done better by now. Paul Volcker?
They were actually called "All Savers Certificates" and yes, I remember them well, great while they lasted, very helpful at a time when we were trying to save up for a down payment on our first home at a time when marginal tax rates applicable to interest income were extraordinarily high, even on a married couple with relatively modest combined income.
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Re: Investing in the 80's when CD rates were 17%?

Post by mtnlover »

Ahem. Anybody remember what mortgage rates were at the time? Seems to me my first mortgage was at 9.75%. Maybe 9.5. That was with 20% down and 30 year term. Made purchasing a house pretty difficult.
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Re: Investing in the 80's when CD rates were 17%?

Post by Grt2bOutdoors »

My folks had a 15 year mortgage, the rate was 11.25 percent.
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Re: Investing in the 80's when CD rates were 17%?

Post by Fallible »

silverskates wrote:Did anyone here avoid the stock market altogether when CD's were at historic highs (17%)? Over Thanksgiving, a retired (70 something) relative of mine was sharing how he is jealous of his good friend who has always avoided the stock market and instead invested only in CD's...even to this day. Obviously, CD returns are not what they used to be but it sounds like there were pretty great back in the 80's. The jealousy is due to the fact that my relative was always full of anxiety as he watched the market go up and down while his friend was getting huge returns in CD's with no stress. Now the friend is way better off financially and this relative attributes it all to these great CD rates.

I've never seen any one on here refer to the great CD returns they got in the 80's so just curious what people's thoughts are.
I was entirely in CDs in the '80s until '87, when I began moving into mutual funds - about six months before the October crash. I even shopped around the country for the highest rates, but don't think I ever hit 17%, although it was close. Also, FWIW, I never thought of CDs as investing, which I thought referred only to stocks and bonds.
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Re: Investing in the 80's when CD rates were 17%?

Post by sport »

grandmacassie wrote:Ahem. Anybody remember what mortgage rates were at the time? Seems to me my first mortgage was at 9.75%. Maybe 9.5. That was with 20% down and 30 year term. Made purchasing a house pretty difficult.
I remember that my bank offered to lend me additional money on my mortgage (cash out) if I refinanced the whole thing at the "bargain rate" of ONLY 14%! I believe the going rate was in the neighborhood of 18%. I had a money market account at an investment company (not a bank) that was paying 18%.
I decided to keep my 6.75% mortgage and not make any extra payments. 8-)
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Re: Investing in the 80's when CD rates were 17%?

Post by nisiprius »

I didn't avoid the stock market because I wasn't really ready to start investing yet.

As for CDs, and financial life in general, the inflation years were not awful but they were not very good. I've posted this before, not 17% but 13.602%. But we were very aware of inflation and that was just a sorta-kinda-OK rate. Yes, we were paying 9-1/4% on our mortgage.

In hindsight, you can say it objectively wasn't bad. My salary did keep up with inflation and a bit more. So did bank interest. And we made out like bandits on our fixed-rate mortgage. But, the period was psychologically difficult. There was a constant feeling of instability, shifting sands, difficulty planning, and a feeling of constantly falling behind.

Every year, I'd get a raise, things would be good, then they'd get harder and harder and harder. Not "hard times" harder, but harder. And even though you thought you'd get another raise that would cover it, you didn't know for sure until you'd had the meeting with the boss.

Bank rates were good enough that you didn't start asking "why should I put money in the bank," and you didn't run out with wheelbarrows full of dollars trying to spend it while it would still buy something or anything like that. You earned, you patiently saved, and you worried.

Prices today are reasonably stable and thus it is a domestic conversation topic when some price jumps. Imagine microwaving a bag of popcorn, and each pop is "awareness that a price has increased." Today's inflation is like the first widely-spaced pops at the beginning. The double-digit years were like the popping really getting going to the point where it is much to fast to count and it is a continuous roar.

You noticed price increases many times a week. And when Nixon implemented price controls, the company vending machine would suddenly start getting filled with 8-ounce cartons of milk instead of 10-ounce cartons (against the law but stuff like that happened a lot. It was very common for product to get a new name with the thinnest fig leaf of a change, so that it could be a "new" product and get a new price).

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Re: Investing in the 80's when CD rates were 17%?

Post by Dottie57 »

In the 1980's I had $10,000 my gifted to me by my grandfather. I put it in a money market fund paying 15-18%. The interest paid my (very cheap) rent while I finished up school.
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Re: Investing in the 80's when CD rates were 17%?

Post by randomguy »

silverskates wrote:
I have no idea about income, expenses and savings rate. I do know that the guy owned his own small business but so did my relative. The way my relative is looking at it is that his friend was getting 30 year CD's (was there even such a thing?) and made 17% interest all that time. Obviously he might not be seeing things the way they actually were. No mention of inflation...he's just seeing the huge returns over all those years. Jealousy can be a very powerful thing because he's only seeing what he didn't get/have. This relative also times the market and watched the market tank in 2008 and then pulled out all his money so his return would have been higher had he road it back up. He has nothing in the market anymore.
How come you never hear about the people who bought the 8-10% 30 years from 5 years before:) Frankly the 17% seems unlikely but people memories of that time get messed up. I seem to remember there was some interest rate inversion around there so maybe he was getting a 1 year CD at 16% and longer term one at 12%. It isn't worth dwelling on.

In retrospect all this stuff lots like the buy signal of the century (and it was). Buy 30 years and make a killing. Buy stocks and make a killing. But the future wasn't knowable. There was always a chance that inflation wasn't tamed for another 5 years and things wouldn't have turned out so rosy. And after a decade of getting slaughtered in both markets people tended not to be too optimistic. In recent terms how excited were you to be investing in March of 2009. Sure now it looks like like a great time. At the time there were numerous people predicating another 20-30% and the resulting depression lasting a decade.
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Re: Investing in the 80's when CD rates were 17%?

Post by Wakefield1 »

There were people saying "buy gold"-probably worked if you then sold the gold at the right time-but blind luck-
Fear that inflation would become like that in Germany during late 1920s-1930s
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Re: Investing in the 80's when CD rates were 17%?

Post by sport »

randomguy wrote:How come you never hear about the people who bought the 8-10% 30 years from 5 years before:)
OK, here is an example: I bought a long term AAA corporate bond about that time. It was a 7% bond yielding 9% when I bought it. It was "the highest interest rate since the civil war". What could go wrong? Well, it lost about one third of its value within a few years. So, I had a first hand lesson about the interest rate risk of long term bonds. Now I know better.
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Re: Investing in the 80's when CD rates were 17%?

Post by nisiprius »

Although I wasn't investing at all so can't talk about it personally, it should always be remembered that the point of a famous BusinessWeek story is conveyed by the full title: "The Death of Equities: How inflation is destroying the stock market." It wasn't a ludicrous failed prediction, it was an accurate statement about the zeitgeist over a period of time in which when stocks had a negative real return. Only a tiny big negative, but negative. (Quite negative after taxes, of course).

Yes, people were avoiding stocks. Two quotations from the article:
Stocks were a reasonable hedge when inflation was low. But they proved helpless against the awesome inflation of the past decade. "People no longer think of stocks as an inflation hedge, and based on experience, that's a reasonable conclusion for them to have reached," says Richard Cohn, an associate professor of finance at the University of Illinois.
ONLY THE ELDERLY REMAIN....

The problem is not merely that there are 7 million fewer shareholders than there were in 1970. Younger investors, in particular, are avoiding stocks. Between 1970 and 1975, the number of investors declined in every age group but one: individuals 65 and older. While the number of investors under 65 dropped by about 25%, the number of investors over 65 jumped by more than 30%. Only the elderly who have not understood the changes in the nation's financial markets, or who are unable to adjust to them, are sticking with stocks.
The investing business was badly hurt, brokerages were in trouble and many failed, and their problems exposed serious problems in back office management when securities held "in street name" for clients could not be located. We are talking about physical stock certificates, and sometimes they showed up in places where they shouldn't have. Brokerages were not like banks then and had very little security in the ordinary sense of the word. It was during that era that the SIPC was created to protect brokerage clients from losses due to negligence or fraud at brokerages.
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Re: Investing in the 80's when CD rates were 17%?

Post by nedsaid »

I was still in college and didn't start my career until September of 1983 but I do remember all of this. One of my first purchases where the EE Savings Bonds which had a guarantee of 6%. I have been cashing in this bonds the last couple of years as they have been maturing. They were paying 4% when they finally matured. I still have some.

I also remember buying zero coupon treasuries. I bought three of them with yield to maturity of over 8% in the late 1980's. Upon my recommendation, a family member bought a bunch of these. Hat tip to Bob Brinker who taught me about these instruments.

There were also stories about students taking out student loans at 4% and getting 18% in the money markets. The rules tightened up and student loans after that were parceled out term by term.

Those were the days when both stocks and bonds were cheap. Exciting times!
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Re: Investing in the 80's when CD rates were 17%?

Post by Wakefield1 »

silverskates wrote:Did anyone here avoid the stock market altogether when CD's were at historic highs (17%)? Over Thanksgiving, a retired (70 something) relative of mine was sharing how he is jealous of his good friend who has always avoided the stock market and instead invested only in CD's...even to this day. Obviously, CD returns are not what they used to be but it sounds like there were pretty great back in the 80's. The jealousy is due to the fact that my relative was always full of anxiety as he watched the market go up and down while his friend was getting huge returns in CD's with no stress. Now the friend is way better off financially and this relative attributes it all to these great CD rates.

I've never seen any one on here refer to the great CD returns they got in the 80's so just curious what people's thoughts are.
OK-a little counterpoint to the great returns of CDs-I happen to have here one of Mr. Bogle's books to quote "thanks to a 2006 dinner marking the 30th anniversary of the fund, I can easily answer that question. At this celebration, attorney Steven West of Sullivan & Cromwell, counsel for the fund's underwriters, reported to the group that he had actually purchased 1,000 shares at the original offering, at a price of $15.00 per share, including an initial sales charge of 6 percent for its distributors. He had held on to that $15,000 investment ever since, making no redemptions and reinvesting all dividends. He pulled from his pocket his most recent Vanguard statement and proudly announced that the value of his holding in that statement had grown to $461,771. As 2012 began, despite the steep bear market of 2007 through early 2009, the value of that initial investment has actually continued to grow-to $550,134. That achievement would seem to require no comment."

(I believe he is talking of the original Index Fund that became today's 500 Index Fund,and of course the owner must have had to pay a lot of income tax on the fund over the years assuming it isn't in a Roth or something.)
[ Book is "The Clash of the Cultures" by John C. Bogle ]
Dandy
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Re: Investing in the 80's when CD rates were 17%?

Post by Dandy »

People don't remember the inflation rates which muted some of those great returns. My Stable Value Fund paid 12%, CDs 15% and I forget how high a 30 year Treasury 18%? went for. Money Markets were in double digits. A few years after the peak US savings bonds and immediate annuities were at 8.5% and buyers were hard to find. I was charged by my department to solicit for the savings bond drive and people were shaking their heads at the 8.5% rate. We almost all thought that interest rates would just keep going higher or at least stay very high. I enjoyed the 12% Stable Value and high money market rates while they lasted.

At the time whole life had guaranteed loan rates at 5% fixed and you could borrow at 5% and get a CD for 15% that was government guaranteed. A rare free lunch. I convinced my in laws to take loans on their whole life policies and told them to buy CDs and assured them that if interest rates dropped they could always pay off the insurance loans. They did it but being so conservative they bought 1 year CDs instead of 5 year CDs. Rates as I recall dropped rather quickly but I don't think they ever repaid the loans and kept a nice allocations to CDs --some of which we inherited.

There was a window of time when people retired with great pensions and lived rather high on their CD interest -- ah the good life which seemed risk proof didn't always pan out when lower rates dropped their CD income drastically and the Country Club fees didn't..
sport
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Re: Investing in the 80's when CD rates were 17%?

Post by sport »

nisiprius wrote:Although I wasn't investing at all so can't talk about it personally, it should always be remembered that the point of a famous BusinessWeek story is conveyed by the full title: "The Death of Equities: How inflation is destroying the stock market." It wasn't a ludicrous failed prediction, it was an accurate statement about the zeitgeist over a period of time in which when stocks had a negative real return. Only a tiny big negative, but negative. (Quite negative after taxes, of course).

Yes, people were avoiding stocks. Two quotations from the article:
Stocks were a reasonable hedge when inflation was low. But they proved helpless against the awesome inflation of the past decade. "People no longer think of stocks as an inflation hedge, and based on experience, that's a reasonable conclusion for them to have reached," says Richard Cohn, an associate professor of finance at the University of Illinois.
ONLY THE ELDERLY REMAIN....

The problem is not merely that there are 7 million fewer shareholders than there were in 1970. Younger investors, in particular, are avoiding stocks. Between 1970 and 1975, the number of investors declined in every age group but one: individuals 65 and older. While the number of investors under 65 dropped by about 25%, the number of investors over 65 jumped by more than 30%. Only the elderly who have not understood the changes in the nation's financial markets, or who are unable to adjust to them, are sticking with stocks.
The investing business was badly hurt, brokerages were in trouble and many failed, and their problems exposed serious problems in back office management when securities held "in street name" for clients could not be located. We are talking about physical stock certificates, and sometimes they showed up in places where they shouldn't have. Brokerages were not like banks then and had very little security in the ordinary sense of the word. It was during that era that the SIPC was created to protect brokerage clients from losses due to negligence or fraud at brokerages.
The thing that puzzled me back then was the fact that everything was rapidly becoming more expensive, except for stocks. It just did not seem to make sense that anything should become less expensive when everything else was moving in the opposite direction. So, I kept buying stocks, with the little money I had to invest. Eventually, that turned out to be correct, and 1982, IIRC, was the beginning of a very long bull market, that lasted about 20 years.
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silverskates
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Re: Investing in the 80's when CD rates were 17%?

Post by silverskates »

I want to thank you all for your many responses. I didn't realize my question would spark such interest and memories of the past! :)

The other thing I forgot to mention in my original post was that my relative said that during this time, another guy he knew put $180k into a 30 year CD making 18%. When I punch that into an online savings calculator it turns out to be more than $38 million. Really? Would this really have happened?

I've never owned a CD but my understanding is that when you buy one you lock in that rate for a certain length of time. So, in this case, let's say this guy put $180k in this CD for 30 years back in 1985 and after 30 years he takes that money out. Yes, there was high inflation and high mortgage rates back in '85 but now in 2015 that is not the case. What am I missing? This sounds too good to be true and unbelievable to me.
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rob
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Re: Investing in the 80's when CD rates were 17%?

Post by rob »

I don't know about 30 years; I doubt they have CD's that long... I did get a 17.75% for 3 months. To the orig question - I didn't know about the stock market at the time.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
cutehumor
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Re: Investing in the 80's when CD rates were 17%?

Post by cutehumor »

so what needs to happen to get savings account, money market, and CD rates to rise? I was not as fortunate to see CD rates this good. I graduated from college in 2000.
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Uncle Pennybags
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Re: Investing in the 80's when CD rates were 17%?

Post by Uncle Pennybags »

silverskates wrote:[Did anyone here avoid the stock market altogether when CD's were at historic highs
My parents would never "invest" in anything that was not FDIC insured and did quite well. Times have changed; after taxes and inflation FDIC insured "investments" are guarantied to lose real buying power.

I bought my home in the 80s; I slept a weekend on a sidewalk in front of a bank trying to get a first time buyer special mortgage of only16%. :shock:
Last edited by Uncle Pennybags on Sat Nov 26, 2016 10:20 pm, edited 1 time in total.
Jags4186
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Re: Investing in the 80's when CD rates were 17%?

Post by Jags4186 »

silverskates wrote:I want to thank you all for your many responses. I didn't realize my question would spark such interest and memories of the past! :)

The other thing I forgot to mention in my original post was that my relative said that during this time, another guy he knew put $180k into a 30 year CD making 18%. When I punch that into an online savings calculator it turns out to be more than $38 million. Really? Would this really have happened?

I've never owned a CD but my understanding is that when you buy one you lock in that rate for a certain length of time. So, in this case, let's say this guy put $180k in this CD for 30 years back in 1985 and after 30 years he takes that money out. Yes, there was high inflation and high mortgage rates back in '85 but now in 2015 that is not the case. What am I missing? This sounds too good to be true and unbelievable to me.
Banks fail and therefore CD rates aren't honored.
Banks are acquired and acquiring banks do not honor the CDs.
Banks are required to have certain capital requirements and failing to meet then can cause then to cancel a CD.
Banks unilaterally cancel CDs because they aren't good for business.

Back in the day there was less regulation on this stuff. I highly doubt anyone who bought a 30 year 18% in 1985 still had it in 2015.
randomguy
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Re: Investing in the 80's when CD rates were 17%?

Post by randomguy »

silverskates wrote:I want to thank you all for your many responses. I didn't realize my question would spark such interest and memories of the past! :)

The other thing I forgot to mention in my original post was that my relative said that during this time, another guy he knew put $180k into a 30 year CD making 18%. When I punch that into an online savings calculator it turns out to be more than $38 million. Really? Would this really have happened?

I've never owned a CD but my understanding is that when you buy one you lock in that rate for a certain length of time. So, in this case, let's say this guy put $180k in this CD for 30 years back in 1985 and after 30 years he takes that money out. Yes, there was high inflation and high mortgage rates back in '85 but now in 2015 that is not the case. What am I missing? This sounds too good to be true and unbelievable to me.
The CD was probably paying simple interest (or paying out the interest yearly). :) Seriously I remember a bank offering those when I was kid. The scam was you got some gift but you lost out on like 2k of interest. Without seeing the docs (to verify the rate and terms) we are all going to be guessing.

To some extent the best time to buy bonds is during periods of high inflation. The basic gamble is that at a certain point it is more likely to go down than up. Sometimes it backfires (i.e. inflation gets out of control) but most of the time you get a recovery in a couple of years. Same thing with the stock market. Investing when the market is down 50% is likely to be a better time than when it is up 300%. But buying at either of those times is always tough mentally. Going against the trend is not something many people are comfortable with. Think about all the discussions people have about about their fear of not tracking an index.
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Re: Investing in the 80's when CD rates were 17%?

Post by randomguy »

cutehumor wrote:so what needs to happen to get savings account, money market, and CD rates to rise? I was not as fortunate to see CD rates this good. I graduated from college in 2000.
Rates were like 6% then and you have the chance to buy S&P 500 at like 800. In 20 more years we might be talking about how great both opportunities were.:)
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silverskates
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Re: Investing in the 80's when CD rates were 17%?

Post by silverskates »

Jags4186 wrote:
silverskates wrote:I want to thank you all for your many responses. I didn't realize my question would spark such interest and memories of the past! :)

The other thing I forgot to mention in my original post was that my relative said that during this time, another guy he knew put $180k into a 30 year CD making 18%. When I punch that into an online savings calculator it turns out to be more than $38 million. Really? Would this really have happened?

I've never owned a CD but my understanding is that when you buy one you lock in that rate for a certain length of time. So, in this case, let's say this guy put $180k in this CD for 30 years back in 1985 and after 30 years he takes that money out. Yes, there was high inflation and high mortgage rates back in '85 but now in 2015 that is not the case. What am I missing? This sounds too good to be true and unbelievable to me.
Banks fail and therefore CD rates aren't honored.
Banks are acquired and acquiring banks do not honor the CDs.
Banks are required to have certain capital requirements and failing to meet then can cause then to cancel a CD.
Banks unilaterally cancel CDs because they aren't good for business.

Back in the day there was less regulation on this stuff. I highly doubt anyone who bought a 30 year 18% in 1985 still had it in 2015.
Thanks for listing some reasons because I thought this was ridiculous when I heard it. My relative has probably less than $1 million and was stressed the whole time he was invested and then assumes that his friends made out big ($38 million big) while sleeping like a baby. Too good to be true.
Wakefield1
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Re: Investing in the 80's when CD rates were 17%?

Post by Wakefield1 »

The longest term CD I see for my credit union is 60 month @2%apr. During the time that interest rates were high I think 48 months was the longest offered. When that term is up (CD matures) your interest rate goes down if you renew unless the high interest is still being offered on new CDs. So its not a J.C. Penny car battery.
Spirit Rider
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Re: Investing in the 80's when CD rates were 17%?

Post by Spirit Rider »

Some things to keep in mind.

It was really only 1979 - 1982 that CDs and MMFs were in double digits. Most double digit long term Treasuries from the 80's were called in the 90's. This caused such an uproar in the Treasury market, they had to make future Treasuries non-callable.

Also, investing was very expensive back in those days. I bought a "21% coupon" 1 YR CD from Smith Barney in 1980. However, I was relatively clueless in those days and between the commission and price premium, I discovered many years later, I only had a YTM of about 16.5%.

Then couple this with the fact that you had a great S&P 500 run from 1982 - 2000. You missed out if you stayed in fixed income. Unfortunately, I was married to a spendthrift wife during the first half of that period. Between a negative savings rate and the divorce 50% haircut, the 80's were not good overall to my financial future.
LXEX55
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Re: Investing in the 80's when CD rates were 17%?

Post by LXEX55 »

Sure, I remember. Those high CD return rates were the foundation for many "buckets" investors. People would ladder their investments up to five years, with a CD coming due each year. I remember my mom in Florida visiting each bank checking their interest rate and often negotiating for a slighly higher one.
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Bylo Selhi
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Re: Investing in the 80's when CD rates were 17%?

Post by Bylo Selhi »

nisiprius wrote:I didn't avoid the stock market because I wasn't really ready to start investing yet.
Ditto. I didn't get into equities until the mid-1980s.

[Historical anecdote: I'd just read Malkiel's Random Walk Down Wall Street. I was intrigued by the notion of indexing. Malkiel mentioned Vanguard. But I was reluctant to send my money to a foreign country to invest in a then-novel idea with an upstart fund company like Vanguard. So I passed and invested in conventional actively managed funds up here. :oops: ]
As for CDs, and financial life in general, the inflation years were not awful but they were not very good. I've posted this before, not 17% but 13.602%. But we were very aware of inflation and that was just a sorta-kinda-OK rate. Yes, we were paying 9-1/4% on our mortgage.
Up here deposit interest rates got as high as 20%. (The 1981 series of Canada Savings Bonds paid 19½% in the first year, then 10½% for the remaining 7 years.) Mortgage rates went even higher. People who had lower rate fixed mortgages did fine, of course. But those whose mortgages came up for renewal saw their monthly payments double or even triple. (In Canada most mortgages come up for renewal every 5 years.) Many of those people lost their homes as a result.
In hindsight, you can say it objectively wasn't bad. My salary did keep up with inflation and a bit more. So did bank interest. And we made out like bandits on our fixed-rate mortgage. But, the period was psychologically difficult. There was a constant feeling of instability, shifting sands, difficulty planning, and a feeling of constantly falling behind.
These points are very important to those who look only at the raw interest rate numbers. What those numbers don't tell, however, include:
1. Those who kept their jobs did OK. Those who got laid of, not so much. And those who lost their jobs and their homes really suffered badly. Not as bad as 2008, to be sure, but bad enough.
2. Even though one could get 15% to 20% on deposits, this was in a period of rapidly rising inflation. People were reluctant to deposit money, even at those rates, because they were concerned that inflation could go even higher, perhaps to hyper-inflation levels. (Yet I know of a couple of people who bought 30-year non-callable Gov't of Canada bonds that paid something like 15% annually. Do the math when held in a tax-deferred retirement account. Compare to equity returns. However, that took guts of steel. I wouldn't (and didn't) bite on that opportunity.)
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