The decade of the seventies was unique. The ‘70s brought us great music like Stairway to Heaven, Joy to the World and Hotel California. The Beatles parted ways and Elvis left us too soon. The Sting, Rocky and The Deerhunter each won an Oscar for best picture while Jaws kept most people out of the water.
The Oakland A’s, New York Yankees and Cincinnati Reds dominated baseball. The Miami Dolphins, Dallas Cowboys and the Pittsburgh Steelers ruled the NFL. The NBA introduced us to Magic v. Bird.
Hank Aaron hit his 715th home run and Muhammad Ali was the reigning heavyweight champion of the world. Billie Jean King beat Bobby Riggs in the Battle of the Sexes and Secretariat won the Triple Crown by thirty-one lengths in the Belmont Stakes.
Disco music, vibrant colors and shag carpet were everywhere.
We watched the horrific acts from the Munich Olympic Games as the Israeli athletes were murdered. Jim McKay told us, “They’re all gone.”
Politically, the decade of the seventies was a hard time for our country because of the resignation of Richard Milhous Nixon, the Iran Hostage Crisis and the fall of Saigon.
The oil embargos of 1973 and 1979 brought the country to its knees with unforgiving gas lines.
We celebrated the 200th anniversary of our great country on July 4, 1976 and watched the return of Apollo 13. Saturday Night Live debuted in 1975 and Star Wars took over the universe a year later. The Sony Walkman was a must have item.
The Sears Tower and Twin Towers opened their doors to the world. The Iron Lady rose to power in the UK and Mother Teresa won the Nobel Peace Prize.
For investors, the ‘70s was a challenging environment because of stagflation, high interest rates and even higher inflation. The S&P 500 eked out a gain of 5.9% underperforming T-Bills which returned 6.3%.[1] Inflation averaged 7.9%[2] during the seventies so after taxes and inflation an investor was left with a negative return. The ‘70s was truly a lost decade. In fact, it wasn’t until 1982 when Business Week declared the death of equites before stocks started climbing again.
However, if an investor ignored the headlines, rhetoric and expert opinions, they were rewarded handsomely by investing in the stock market for the long haul.
An investor who invested $100 per month in the Fidelity Magellan Fund (FMAGX) on January 1, 1970 through July 31, 2017 now has a nest egg of $4.45 million! During the past forty-seven years, the Magellan Fund dropped meaningfully numerous times. In 1973 and 1974 it fell 69%. In 2001 and 2002 it dropped 35%. In 2008, it was cut in half, falling 49%. Despite these declines the fund managed to produce an average annual return of 13.8%[3]. A buy and hold investor enjoyed these outsized returns if they stayed the course.
Since 1970, the S&P 500 has averaged 10.3%, T-Bills have averaged 4.8% and inflation has averaged 4%.[4]
The outlook for stocks and bonds is once again dire according to a few market professionals and some experts are predicting low stock returns with rising interest rates.[5] Should you pay attention? If your time horizon is three to five years or more, my suggestion is for you to focus on your financial plan and keep investing. If (when) the stock market corrects, use it as an opportunity to add quality stocks to your account because the long-term trend for the stock market will reward you in the future just like it did for our investor in 1970.
“Therefore, keep watch, because you do not know the day or the hour.” ~ Matthew 25:13
Bill Parrott is the President and CEO of Parrott Wealth Management, LLC and enjoyed the seventies. For more information on financial planning and investment management, please visit www.parrottwealth.com
August 30, 2017
Note: Your returns may be more or less than those posted in this blog. Past performance is not a guarantee of future performance.
[1] Dimensional Fund Advisors 2017 Matrix Book.
[2] Ibid.
[3] Morningstar Office Hypothetical Tool, Fidelity Magellan Fund, 1/1/1970 to 7/31/2017, returns do not include taxes, your returns may be more or less than those posted in this report.
[4] Dimensional Fund Advisors 2017 Matrix Book.
[5] http://marcfabersblog.blogspot.ca/2017/02/marc-faber-warns-higher-yields-may.html