50 Years Later: JFK and the Misery of Rising Interest Rates

On the 50th anniversary of one of the most tragic events in U.S. history, I took a quick look back at investment market history around that time, with some help from Sungarden analyst Mark Jakupcik. As it turns out, the stock and bond markets had done quite well in recent years and by mid 1963, the 10-year Treasury was a bit under 4% (around the lowest rate in about a half-decade) and the stock market was near its all-time high. Whether it was a direct result of the calamity of Kennedy’s death or other factors, late 1963 was a turning point for the U.S. stock and bond markets.

What ensued was a seven-year period in which investors in both stocks and bonds struggled. As the graph below shows, a dollar invested in the S&P Composite Index at the end of 1963 grew to a mere $1.18 by the end of 1970. That’s an annualized return of…yuck!

Meanwhile, 10-year U.S. Treasury rates rose from that 4% area to 7.35% by the end of 1970. This created a headwind for bond investors who had become comfortable with bonds being a source of preservation of capital and a helpful diversifier from stocks.

Today, while the world is a very different place than it was 50 years ago, we see some dangerous parallels in both market levels and the negative surprises that potentially await investors who have become complacent. Believing that a traditional approach to stocks and bonds is the elixir going forward as it has been in the past, could just get you seven years of misfortune, as occurred from 1963-1970.

Our guess is that many investors and financial advisors who stay put and simply think that past is prologue will look back on such a seven year period (IF history repeats) and consider themselves to be simply unlucky – victims of the times, and comforted by the belief that if they just “hang in there” things will get better. If you know about what happened to financial markets in the 1970s, you know this line of thinking is at best, flawed and at worst, life-changing (not for the better!).

We continue to believe that an approach that emphasizes dividends for cash flow (not bond income) and includes a disciplined approach to hedging the possibility of major stock market declines is a more rational approach to today’s markets, and will help investors sidestep much of the disappointments of the 1963-1970 era. You are not changing your luck, just simply opening your mind to the potential benefits of hedged investing, volatility management and a logical approach to retirement income for the 21st Century. Learn more at our new website http://www.sungardeninvestment.com.

*All values are adjusted for inflation

*All values are adjusted for inflation

© Sungarden Investment Research


Read more commentaries by Sungarden Investment Research