I always hear about inflation from the 70s being double digit until they raised interest rates to 20%. How did people invest to stay ahead of that? I understand pensions were a thing and the average joe really didnt invest until the computer age, what financial instruments kept pensions afloat or allowed people to get ahead like today? If we are only allowed to assume 10% market returns as is the advice now
financial questions about the 70s
byu/failed_engineer_mx ininvesting
Posted by failed_engineer_mx
9 Comments
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They didn’t get ahead, they just didn’t fall as far behind as they would have by leaving their money out of the market. There was no way to beat The Great Inflation without seriously risking your principal.
Many people lost everything.
[https://en.wikipedia.org/wiki/Savings_and_loan_crisis](https://en.wikipedia.org/wiki/Savings_and_loan_crisis)
I remember my mom and step dad buying a house in 1980, and their mortgage interest rate was somewhere around 13%.
You could buy a 30-year treasury earning you 15%, that’s 15% every year for 30 years one of the best investments you could have ever made
Stock funds had outflows from the mid-1970s to 1981 (remember the late 1960s to early 1970s had the “nifty 50” growth stocks). Active growth funds were marketed heavily and index funds were just starting out. Maybe “value” stocks like oil and agricultural companies (remember growth took a hit despite IBM being the #1 stock for most years from the ‘60s to early ‘90s). While international stocks did well and I know they sold international stock funds in the 1980s .. not sure about the 70s (may have had a bum rap as some brokerage sponsored ones were full of crap despite exciting names. Dividing intl into “regionals” like Western European and Pacific w/Japan et al had a lot of adherents).
More retail investors started putting their money in money market mutual funds as short rates were relatively high (perform a “Rule of 72” calculation) .. but also accounted for inflation by actually melting the family silver, dealing in coins, jewelry, etc.. . Gold was big as were various oil, etc.. ventures (which became regulated in the ‘80s). A version of the same gold coin ads you see today, though apartheid era krugerrands were becoming controversial (re: buying a lot of gold was illegal for Americans until 1974 .. +/-). Opening a restaurant was still an iffy proposition but could probably make a business selling cheap to refurbished goods.
At least some bigger, more savvy investors, bought bonds in a contrarian move, figuring the high rates at the time of Volcker wouldn’t last. Keeping those high rates in a 60/40 portfolio was a good deal into the early ’00s fwiw.
My parents don’t do any of those things because they couldn’t get a job to afford to do that. What my dad was was volunteer to fight in Vietnam so he could have meals and shelter. Being able to buy CDs and stocks wasn’t as common then because it just wasn’t available to common people. People still had to buy stocks 100 at a time.
“what financial instruments kept pensions afloat”
Companies fund pensions, defined benefit plans. 401k, defined contribution plans, got passed in 1978 and got implemented a few years later.
I remember watching a TV show where two public school teachers donated multiple millions $ to something, the woman saying, “You were foolish not to be saving when interest rates were 14%.”
The highest mortgage rate was in 1981. It broke 18%. In the mid-1970s, it was 7% or so in our area. I remember talking about it with my father. He liked to buy highly leveraged.
If you were asset class diversified and you had a reasonable gold position you were fine. No one did of course. Did we learn is the question…..
My aunt was in the early part of her career when the 70s hit . She routinely bought mutual funds from every pay check until she retired 38yrs later. Then she left the mutual funds on drip. She’s in her 70s now and I asked her when she plans to cash some out but she said she can’t because then she’d have to pay capital gains and it would affect her pension . She has no kids .