Investing in the 1960's

What can we learn from Investing in the 1960's? Will the same trends in the 1940's and 1950's hold true in the 1960'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 1960 - 1969, as found in the book titled Investments by Bodie, Kane, & Marcus. This period includes the Vietnam War and Hippies. Did anyone make money during this period? What investment did the best?

If $1,000 was invested on January 1, 1960 here is how the numbers came out:

Small Cap Stocks = $3,619
Large Cap Stocks = $2,128
Long Term Bonds = $1,120
Short Term Bonds = $1,464

For the 3rd decade in a row, stocks outperformed bonds by a large margin. Small cap stocks beat out large cap stocks by a narrow margin. Short term bonds was third. Long term bonds came in last and really did not grow very much, adding $120. 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
1960 /948 /1,002 /1,138 /1,027
1961 /1,237 /1,279 /1,140 /1,048
1962 /1,034 /1,166 /1,218 /1,077
1963 /1,161/1,430 /1,212 /1,111
1964 /1,378 /1,669 /1,266 /1,150
1965 /1,897 /1,877 /1,263 /1,195
1966 /1,744 /1,685 /1,310 /1,252
1967 /3,547 /2,091 /1,213 /1,305
1968 /5,343 /2,321 /1,198 /1,374
1969 /3,619 /2,128 /1,120 /1,464

OBSERVATIONS

(Similar to the 1950'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 5 of the 10 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 & 1950's mostly held true in the 1960's. Investors in stocks were rewarded long term while bond holders had stability and not as 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.