![]() These numbers, incidentally, represented property-owning REITs and excluded mortgage REITs, which own loans.īut there are two caveats to this. Less well-remembered, maybe, is that REITs also did pretty well. ![]() No one who remembers the 1970s will be surprised that energy companies boomed. But once again you were going backward when you needed to be going forwards. And Treasury bills-short-term paper-did better still. Utility stocks weren’t great, but they held up better. It’s worth remembering that these are real term losses over a decade, which means investors didn’t just lose a lot of money-they also lost a lot of time. Federal Reserve quantitative easing, bond buying, and zero interest-rate policies have left Treasury yields at their lowest on record-which means the turns would be a disaster if inflation reared its head. You could argue that the danger today is even greater, simply because the yields on long-term Treasury bonds are so low. (In Great Britain, where inflation was even worse, government bonds during the 1970s became known as “certificates of confiscation.” Ouch.) The near 40% loss of purchasing power over 10 years is somewhat notional-it is derived from the compound annual returns on 10 Year Treasurys compiled by New York University’s Stern School of Business, divided by the consumer-price index-but tells a story nonetheless. The key standout is that you really didn’t want to own Treasury bonds. (I’ve excluded gold, which is a different story.) This is what happened to your purchasing power if you invested in these assets and hung on for 10 years. (I used those dates because the National Association of Real Estate Investment Trusts, or NAREIT, starts their data series then.) The data on energy stocks came from data compiled by professor Ken French at Dartmouth College’s Tuck School of Business. Nonetheless the chart above shows the total returns, after adjusting for inflation, of various asset classes from December 1971 to December 1981. There is no guarantee the next inflationary boom, even if it happens, will look anything like the last one - any more than we should assume that it will be accompanied by outbreaks of disco music and flared jeans. The Greek philosopher Heraclitus pointed out that no one ever walks through the same stream twice, because the second time it’s not the same stream, and we’re not the same person. So I went back and dug up the information from the last, infamous inflationary spiral in the 1970s, when consumer price inflation often topped 10% a year. For someone in their 60s, let alone older, that can become a major financial crisis. Someone in their 20s or 30s may not worry unduly if their retirement savings plunge 30% in a market rout or an inflationary spiral. When we’re older we’re generally advised to keep most of our money in more “conservative” investments, meaning things like bonds, that involve less risk. That’s an especially key question for today’s retirees and those expecting to retire soon. ![]() If serious inflation really does hit, what can we do about it? How can we protect our investments? We’ll see.īut with all this talk I got to thinking about the obvious question. That’s higher than we’ve been used to for a decade, but it’s nothing to cause any significant alarm. The market sees five-year inflation running at around 2.6%. The bond market’s 5-year inflation forecast is now lower than it was in mid-March. On the contrary, they’ve been falling for two months. Had they continued there would be grounds to worry. Yes, the inflation forecasts were surging months ago, and hit 8-year highs. Readers may be excused for thinking something similar about the latest stories about looming, threatening, surging, terrifying inflation.
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