The table below shows the performance of small cap stocks (Russell 2000), large cap stocks (S&P 500) , long term bonds, and short term bonds during the 14 year period of 1926 - 1939, as found in the book titled Investments by Bodie, Kane, & Marcus. I was not alive and from talking with people who were the Depression was a difficult time period. Did anyone make money during this period? What investment did the best?
If $1,000 was invested on January 1, 1926 here is how the numbers came out:
Small Cap Stocks = $1,735
Large Cap Stocks = $1,731
Long Term Bonds = $1,833
Short Term Bonds = $1,185
Long term bonds had the slight lead and grew by $833 to $1,833 with small cap and large cap stocks close behind. Short term bonds came in last and grew by $185 to $1,185.
Below is a table of the value of the $1,000 investment at the end of each year.
Year Small Stocks Large Stocks Long Term Bonds Short Term Bonds
1926 911 1,122 1,045 1,032
1927 1,204 1,526 1,130 1,064
1928 1,747 2,125 1,120 1,098
1929 859 1,963 1,169 1,150
1930 467 1,454 1,242 1,177
1931 237 792 1,176 1,189
1932 263 719 1,316 1,202
1933 757 1,112 1,329 1,203
1934 948 1,086 1,464 1,210
1935 1,596 1,582 1,537 1,191
1936 2,945 2,113 1,637 1,180
1937 1,393 1,352 1,644 1,184
1938 1,737 1,749 1,731 1,185
1939 1,735 1,731 1,833 1,185
As you can see by the numbers, even though small cap stocks, large cap stocks, and long term bonds had roughly the same value at the end of 1939, long term bonds were more price stable. Stocks had some wild swings and eventually recovered and it would have been a very difficult time as an investor in stocks.
This period shows the value of diversification and how having bonds can keep an account value more stable. It also shows that stocks need to be held with a longer term perspective.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment