The Sun Also Shines

The notion that shares (represented by the S&P 500*) went backwards from 1966 to 1982 left me worried, thinking, "Could it happen to me?"


Chart Link

The Sun Rises and the Sun Sets

In fact, it's not that share prices fell in that period, it's that inflation remained high, dissipating returns. Run your own numbers here.

Dividend yields before inflation were great by today's standards, even more so long term interest rates. As an investing noob, I've been bemused at retirement calculators that default to a sizable position in fixed interest.

"Like, why would you bother when shares will always pwn bonds? Duh."

Not so. Bonds could have provided some shelter during those times when share returns weren't coming close to inflation.

My other tendency to ignore dividend yield and assume that stocks are only good for capital gain also indicates my inexperience and naivety. I am foolish to concentrate so hard on the rising and the setting of the sun to ignore that it also shines.

A Generation goes and a Generation comes

As humbling as this exercise has been, it has also salved my isolation. Inflation, dividend yield, and the long term interest rate have converged three times since the turn of the twentieth century. 1905, 1956, and present day**. It fascinates me to think that such times happened before. Investors must have been similarly confused, but well, their lives went on. Those are merely three out of many comparators, and so I wonder what else our times have in common.

"... but the earth remains forever." Ecclesiastes 1:4

Data courtesy of Robert Shiller.
*The S&P 500 has been extrapolated backwards since its inception in 1957.
** 1929 saw a convergence between yields and rates but not inflation, indicating to me that the stock market was as much a victim of the great depression as its cause.