Investing in the 1950's

What can we learn from Investing in the 1950's

The table below shows the performance of small cap stocks, large cap stocks, long term bonds, and short term bonds during the 10 year period of 1950 - 1959, as found in the book titled Investments by Bodie, Kane, & Marcus. This period includes the Korean War and baby boomers.

Did anyone make money during this period? What investment did the best?

If $1,000 was invested on January 1, 1950 here is how the numbers came out:
Small Cap Stocks = $5,697
Large Cap Stocks = $5,896
Long Term Bonds = $1,024
Short Term Bonds = $1,203

Stocks outperformed bonds by a large margin. Large cap stocks beat out small cap stocks by a narrow margin. Short term bonds was a distant third. Long term bonds came in last and really did not grow, adding $24. Doesn't it seem ironic that during a period of great uncertainty that stocks would outperform bonds and grow this much.

Below is a table of the value of the $1,000 investment at the end of each year.

Year /Small Stocks /Large Stocks /Long Bonds /Short Bonds
1950 /1,455 /1,327 /990 /1,012
1951 /1,592 /1,638 /971 /1,027
1952 /1,693 /1,948 /990 /1,044
1953 /1,597/1,914 /1,028 /1,063
1954 /2.637 /2,920 /1,078 /1,072
1955 /3,213 /3,838 /1,063 /1,089
1956 /3,335 /4,086 /1,008 /1,116
1957 /2,834 /3,630 /1,103 /1,151
1958 /4,836 /5,220 /1,062 /1,169
1959 /5,697 /5,896 /1,024 /1,203


OBSERVATIONS (Similar to the 1940's):

1. Stocks do a better job of providing investment growth
2. Bonds to a better job of providing account balance stability
3. Short term bonds outperformed long term bonds - unusual
4. Stocks need to be held with a longer term perspective
5. Stocks did well even in a period of uncertainty
6. You can not time the market
7. Stocks had up and down years
8. Long term bonds lost money 2 years, so it is possible for a bond to lose money
9. Short term bonds never lost money in a year
10. Small cap stocks had more volatility than large cap stocks

The trends of the 1940's mostly held true in the 1950's. Investors in stocks were rewarded long term while bond holders had stability and not much growth. It is important to know what you want your investments to do and act accordingly. It is not possible to predict the future value of an investment and diversification can smooth out some risk.