Thanks to the invaluable Stocks, Bonds, Bills, and Inflation® Classic Edition Yearbook published by Ibbotson Associates, we can take a shot at answering this question. Ibbotson provides monthly return data back to 1926 for the following asset classes: S&P500 stocks, US small stocks, US long term government bonds, US 30-day treasury bills and US inflation.
We have modeled five different portfolios for the period 1926-36:
- MODAGV - moderately aggressive with 60% S&P500 stocks, 30% LT bonds and 10% Tbills
- AGV SP500 - aggressive with 80% S&P500 stocks and 20% LT bonds
- GOLDBUG - 50% Tbills and 50% US inflation, as a proxy for gold or similar commodity
- AGV SMSTK - aggressive with 80% small stocks and 20% LT bonds
- LT BOND - a coupon clipper's dream with 80% LT Bonds and 20% Tbills.
This portolio more than doubled its value over this troubled decade, as large US companies found ways to navigate through the implosion of the global economy. It only dropped slightly below original cost once - in 1931. Stocks continued to pay dividends, although at a reduced level.
Small stocks were crushed by the Depression, but even they recovered and moved into positive territory. The next 10 years would in fact see the AGV SMSTK portfolio move into the lead.
The GOLDBUG portfolio was a dog, as short term rates dropped close to zero and deflation set in with a vengeance.
