There’s a skeleton lurking in the UK’s financial closet. It’s the ghostly remains of a terrible bear market – one that makes Japan’s 31-year stock stagnation look like a temporary blip. This multi-decade decline was the UK’s ugliest bond market crash (and we’ve had a few).
It took 40 years to reach rock bottom. Losses peaked at -79% in 1974. Full recovery took until 1997 – over two decades later.
The whole horror show lasted more than 62 years and unfolded like this:
Data from JST Macrohistory1. February 2023.
Note: This chart – and this entire article – uses real returns2 that incorporate reinvested income.
The two sides of the graph form a jagged hell mouth that swallowed bond investors in the 1930s.
The magnitude and duration of the drop should dispel forever any notion that bonds are inherently ‘safe’.
Bonds are risk assets. It’s the often-divergent nature of their risk – as opposed to any supposedly invincibility – that can make them a useful complement to equities.
Well… sometimes.
The great bond market crash of 1935-97
A log view of the same chart shows how each downward leg of the bond market crash compares:
The -46% ledge-drop of 1972-74 alone was deeper than many stock market implosions.
But we must go further back – to the aftermath of World War One – to find the dark roots of this nightmare.
The trauma of that war gave way to mass unemployment as the Government cut spending and raised interest rates. Its priority was to recover Britain’s preeminence in international trade, and it was prepared to sacrifice the living standards of the general population to achieve that goal.
As wages and demand fell, Britain was wracked by deflation during the 1920s and early 1930s.
Deflation is like steroids for bonds – real yields rose, propelling gilts to a 480% return from 1921 to 1934.
But the Great Depression and unemployment as high as 22% put paid to the Treasury’s tough medicine – the market pushed Britain off the Gold Standard as the Bank of England’s reserves drained.
Yet ironically, the forced policy-reversal proved a blessing (and not for the last time).
The abandonment of the Gold Standard devalued the pound and gifted the Chancellor the freedom to cut interest rates. The resultant cheap money stimulated the economy3 but it also sparked inflation back to life.
And inflation is the arch-nemesis of bonds.
Inflation nation
Our next graph shows how surging inflation triggered gilt losses, while decelerating inflation eventually precipitated the bond market’s recovery:
The sharp spikes in the green annual inflation line correlate with a collapse in bond values. A recovery only began in the 1980s when the general trend pointed down.
If this were a game of Cluedo then it’s case closed. It was RPI inflation that did it, clobbering bonds over the head with the ‘basket of goods’ on the trading room floor.
The 60% loss incurred by 1956 is directly connected to the accelerating inflation that erupts on the chart from the late 1940s. That inflation reached double digits in 1952.
When Prime Minister Harold Macmillan said, “You’ve never had it so good,” he clearly wasn’t addressing bond investors.
The 1960s did provide some relief. Both inflation expectations and gilts drifted sideways.
But then inflation exploded. It jumped over 9% in ’73, 16% in ’74, and peaked at more than 24% in ’75.
1974’s -27% loss inflicted the third largest annual bond defeat of all-time (after 1916 and 2022).
The UK’s worst stock market crash reached its nadir that same year – but by New Year’s Eve the worst was over, despite inflation remaining in double figures for the rest of the 1970s.
A key takeaway from the chart is that nominal bonds aren’t crushed by high inflation per se.
Gilts made an annual gain of 11% in 1975 even though inflation was 24%, for instance.
Why? Because inflation wasn’t as high as the market had feared, and bond yields had already risen to compensate.
Do you yield?
The following long-term yield chart for the bond market crash period proves that investors aren’t defenceless in the face of inflation:
The graph tells us three things:
- As bond prices fall yields rise. It’s the law. (It’s also maths).
- Investors’ demand higher yields to protect their returns against galloping inflation.
- The stage is set for outsized bond returns if yields outpace future inflationary risks – and especially if interest rates trend down after you’ve locked in a good yield.
Back in 1935 the long-term yield was 2.9%. As yields spiralled they inflicted capital losses that – coupled with soaring inflation – explain the damage sustained by long-term legacy gilt holders:
| Year | Yield | Cumulative loss |
| 1951 | 3.8% | 50% |
| 1956 | 4.7% | 60% |
| 1974 | 15.2% | 79% |
Fast-rising gilt yields – accompanying inflation breaking loose in 2022 – similarly administered a -30% bond shock last year.
Peak yield
Back in 1975, the yield had already dropped down to 14.6% as inflation crested. That crumb of comfort meant a small 11% bump in bond prices that year – just about visible as the beginning of the recovery in the gilts vs inflation chart above.
Inflation can remain blisteringly high when we think of it as consumers. But it is high and unexpected inflation that pains us as bondholders.
Inflation and yields trended down through the 1980s and 1990s, and at last those 1934 bondholders saw a positive return for the first time. Or perhaps their grandkids did.
As unseen Movietone News commentary of the era put it with characteristic plumminess:
Yes, it’s 1997! New Labour sweeps to power ending 18 years of Tory rule, and Aqua’s Barbie Girl is top of the Hit Parade!
Meanwhile, the class of ’34 are going bond bonkers! They’ve earned 3.4% in 63 years, or a whopping 0.05% annualised. The lucky blighters!
Movietone was not known for the depth of its financial analysis.
Survivor’s gilt
As benighted as the path was for investors caught in the jaws of that great bond bear market, anyone brave enough to bet on a comeback in the 1970s was set to earn equity-like returns.
Buying into 1975 gilts delivered annualised returns of 5.7% over the 10 years, and 6.5% over 20 years.
1982 rolling gilt returns were 9.3% annualised for the next decade – and 8.5% over two decades.
Which, incidentally, is a clue as to why it’s so tricky to call the bond market now.
If inflation subsides, you could be locking in a good yield that’ll deliver decent returns in the future – including substantial capital gains if interest rates fall.
But if inflation continues to go rogue then our nominal bonds will be as useful as a woolly bath.
What to do? We’ve previously explained why every asset class has a place in a diversified portfolio.
It’s best to spread your bets when reckoning with uncertainty.
Take it steady,
The Accumulator
Postscripts
P.S. It’s worth reiterating: this article uses inflation-adjusted total returns to understand exactly what investors’ earned during the bond market crash. Bond articles that don’t deal in real returns do their readers a disservice. For example, the 1935 bond bear market covered above is fully recovered by 1941 when judged in nominal terms.
P.P.S. The second most hideous UK bond market crash began in 1898 and hit -71% in 1920. Those investor’s were made whole by 1932, thanks to that deflationary bond bull market that followed World War One.
P.P.P.S. There’s one grim path that sees 1879 bondholders still underwater 102 years later in 1991. Their returns are perfectly respectable until World War One ruins them. They claw their way back into the black during the deflationary era, but the 1974 FUBAR leaves them staring at a loss again. Finally the 80’s bond boom pushes them back into positive territory where they remain today.
P.P.P.P.S. For a grounding in the mechanics of bonds, please read our pieces on rising bond yields and bond duration. We also have a handy jargon-buster that clarifies some bond terms that are useful to know.
- Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor. 2019. “The Rate of Return on Everything, 1870–2015.” Quarterly Journal of Economics, 134(3), 1225-1298. [↩]
- Real returns subtract inflation from your investment results. In other words, they’re a more accurate portrayal of your capital growth in relation to purchasing power than standard nominal returns. [↩]
- Triggering a housing boom which left us the legacy of countless streets of 1930s semi-detached properties that still make wonderful homes today. [↩]
I wonder whether the observations made in this article make gold a “safer” bet than bonds now that we don’t know whether inflation will persist or subside. If it persists and nominal rates hike, bonds would hurt due to the contractual fixed income till maturity. There’s no coupons on gold. That real yield can still be much lower or even negative could benefit gold.
And if inflation and nominal rates trend down, that also seem to benefit gold. Am I missing anything?
I will never own bonds again as an insurance. Cash is better for it. Unless someone can point me to similar crash happened to cash?
@Michael Inflation linked bonds exist that protect against unexpected inflation, watch the duration though… The index linked funds that cover uk index linked bonds have very long durations, thus the interest rate exposure can overwhelm the inflation protection. ( they are volatile and more equity like in that sense) Individual index linked bonds can be very useful against an index where the duration is maintained.
@Peter Short duration bonds are far less volatile than intermediate or longer duration bonds.
Gold is a way of getting exposure to the US dollar, you can own inflation linked US treasury bonds with a real interest rate presently of about 1.5%, not unattractive, of course this reflects US inflation and there is the currency risk.
In some respects bonds are simpler than equities, they have known characteristics when you buy them and its ‘just maths’ however there are a lot of wrinkles, fortunately Monevator has covered them in multiple posts, so I won’t had any more to this reply.
The low bond yields we had during the Covid crash caused me some concern about holding bonds, but it was precisely this shocking bond performance in the 1970s that tipped me over the edge. I went from 60:40 equities:bonds to 90:10 equities:cash and I am very pleased I did as, so far at least, I think I have had a lucky escape. Cash/short duration bonds performed much better in decumulation during that 1970s period.
Cash still lost to inflation back then, but the loss was not compounded by nominal losses as well.
On average bonds do better than cash, but for decumulation I prefer not to have the tail risk in my “safe” asset.
I agree with @Peter’s and @Naeclue’s comments somewhat. My faith in holding a large portion of my portfolio in safe(r) bonds has been seriously tested.
I’d switched from a large proportion of cash savings to bonds to improve likely return on that amount in the longer term. That may still prove to be appropriate over time, but I’m now going to split my defensive allocation at least equally between cash and bonds.
There’s a fascinating Occult take on all this:
you notice the crashes happen about every 50 years, which happens to be
about the same period as the ancient Jewish Jubilee system of debt forgiveness on a 49 year cycle. So it’s fundamental to any debt-based money system, and some cultures legislate for it.
Jesus, this article doesn’t exactly fill you with confidence in bonds does it?
Kinda makes you feel that investing in crypto could be less risk!! Thought bonds were meant to be a “relatively” safe haven but in the doldrums for decades upon decades doesn’t sound like where I wannabe anytime soon.
Think I’ll stick to cash – not earning anything much but not losing in nominal terms either.
@TA is a lot more savvy than me about investment matters and can probably justify his graphs, but I can’t help wondering what they mean. There can’t be too many 1934 bonds still in circulation, certainly not enough to create a market big enough for price discovery. I assume the graph represents prices for some sort of standardised and completely hypothetical bond.
It seems to me the graph is telling us what we know anyway, that when interest rates rise there is a drop in bond prices to get a corresponding rise in yield. And times of high interest rates tend to be times of high inflation. A drop in price by 79% sounds dire but it translates to a five-times increase in interest rates – which is quite possible as anyone who has been awake over the last year knows.
What are the odds of this kind of dreadful run happening to a globally-diversified bond fund? Presumably much less likely?
@all — Remember that this is the *worst* outcome suffered by a *particular* tranche of bond investors / in a particular year. (i.e. a bunch of bonds bought at the start of the series and then presumed to be held/reinvested from then on until they’d made back their initial investment in inflation-adjusted terms).
It’s not saying that it was terrible to buy bonds for all time-intervals throughout this long period.
i.e. It’s like looking at the returns for equities if you’d put money in at the peak of the Dotcom bubble in 2000. That was bad and you waited a long time to get even again, but by 2003 the market was cheap enough to deliver decent returns again going forward.
Nobody puts everything in at the peak that with all their money, and most people add to their investments over time. And nobody should have all their portfolio in UK bonds!
It’s a valuable lesson because it shows us how bad things have gotten for UK bonds in the worst instance — in inflation-adjusted terms.
That is an extreme edge case, for sure, but it’s also an antidote to extreme strategies like “put everything in bonds you don’t need stocks”. (Something I *have* heard from time to time, someone even wrote a book about it).
The real takeaway, as always, is diversify — across assets, across time periods, maybe even across strategies for getting and spending. 🙂
“Money is like muck, not good except it be spread.” – Francis Bacon
Bonds seem to still be the only reasonable alternative to equities in the amateur investors portfolio
Other alternative assets seem too opaque and/or too expensive
Bonds are there to reduce the volatility of a portfolio,preserve wealth accumulated and give some growth
Equities on the other hand dance about -volatility-giving the serious uplift/growth to the portfolio
Youngsters go all in equities,oldsters with accumulated monies temper the ride with bonds
Now 76-23 yrs rtd- a track record?- bonds worked for me
Finally eventually retired with enough saved and a conservative portfolio of 30/65/5 -equities/bonds/cash-conservative investor
A global equity index tracker and a global bond index tracker(hedged to the pound) only
Worked so far -bond part of portfolio did what it was supposed to do and Drawdown came mostly from the equity side of the portfolio as you would expect -constant -3.5-3.8% withdrawal rate pa.
Always kept looking for a bond alternative but haven’t found a satisfactory one yet!
xxd09
@xxd09 – I think Naeclue has pointed to cash as a “simple” alternative to fixed income, and given the pathetic performance of my (small) bondholding I would tend to agree. In addition, short duration bonds as proxies for fixed term cash deposits are also OK, which is why I’ve started to move excess cash into 6 and 1yr t-bills.
Slightly OT, but it’s that time of year again and I’m looking for a small punt on the kids’ new JISA money – 80% is in HSBC FTSE All-World Acc, 20% in LGIM’s UK Index Trust, that’s had a great run lately so looking to shift this portion to an EM fund. Maybe it’s the recent TI articles that have me thinking naughty thoughts, but a risk-on approach can’t hurt as this money’s locked in for another 8-10 years… am I crazy?
xxdo9 – being 65% bonds you can’t have come very well out of it over the last year – as been a disaster scene hasn’t it?
@TA – I have enjoyed the last couple of articles about the deficiencies of bonds. However, they are very timely….which I mean as a criticism. It seems your comments are too nuanced, or perhaps some readers can’t see beyond their recently acquired pain and perspective.
Comments above of the “I just lost money on bonds, now you tell me they are risky – I’ll never hold them again!” type.
Can we have some articles such as:
– When Bonds Saved the Day
– The Risks of Holding Cash
I know you have written these kinds of things before, but I would say now is the time for those. It seems some of your readers are taking the “Beware Bonds” articles a bit too simplistically in the current environment, despite your reiteration of the diversification message. Hopefully it is just a minority that are not getting it. 🙂
Note to all – none of us know what the future will bring. When you are saving for a distant future you can (perhaps) afford to put most of your trust in equities. But when you need to live off your investments you need to spread your risks. It is not the performance of an asset on its own that matters but how it interacts with the other assets in your portfolio. And the more assets you have that behave differently in different economic conditions the more comfortable your ride will be in retirement.
Actually portfolio was down 13% at the lowest point -now back up and 4% down on this time last year-going the right way?
2 years of living expenses in place so no need to touch portfolio yet
So OK so far
No doubt the stockmarket (equities and bonds etc) will climb again-it always has done in previous times
I am sure portfolio drops of these amounts occurred regularly in the past-2008?
At 76 it’s all becoming a bit academic as wife and I slow down
I do think downturns do test amateur investors severely but it is too late in the middle of the storm to start changing horses
Your Asset Allocation should have been set in calmer waters -then you have to stay the course
Of course an amateur investors first serious down turn is often a learning experience where they discover that their toleration of risk is not high as they thought and amendment of their initial Asset Allocation is required (more bonds and/or cash?)
For those who have been here many times before and are comfortable in our battle tested Asset Allocation we just keep calm and carry on!
xxd09
@xx09d — A wonderfully wise comment. Congratulations on your successful journey! 🙂
@ Moo – I was writing about diversifying beyond bonds well before 2022:
https://monevator.com/how-to-protect-your-portfolio-in-a-crisis/
https://monevator.com/60-40-portfolio/
https://monevator.com/defensive-asset-allocation/
https://monevator.com/asset-allocation-for-all-weathers/
I’ve also mentioned this huge bond crash before (and worse) but haven’t had the data (or time) to explore it properly.
https://monevator.com/investing-biggest-falls/
On the one hand, I take your point that after last year, there’s a tendency to swear off bonds for life. On the other, my last piece showed why you need every useful asset class. Because nothing always works.
https://monevator.com/diversified-portfolio/
Cash returns are lower than bonds over time. There’s a horrendous bear market in gold that took 30 years to recover from. It took the Japanese stock market 30 years to recover from its massive 1989 bubble.
What I’m trying to do is give a warts and all picture of the nature of investing.
I’ve written plenty of pieces about why bonds are useful and attempted to explain why rising yields actually work out well for investors in the long run:
https://monevator.com/rising-bond-yields-what-happens-to-bonds-when-interest-rates-rise/
For my money what probably needs to change is the 60/40 default portfolio. That 40% needs to be split between more defensive assets. But going 60/40 cash probably won’t be optimal either – as we’ll doubtless find out a crisis or two down the road.
Where does this leave Vanguard Lifestrategy, which you favour, and which includes bonds? Should I ditch my 60/40, keep 60% equity and 40% cash?
@ Wodger – last year global bonds did better than gilts when Truss lost it. But the key is inflation. If you live in a country that won’t control it then you’d be better off with unhedged assets that appreciated as rampant domestic inflation hammered your home currency. I do think the UK has learned the lessons of that period however. The Bank Of England is more vigilant against inflation, organised labour is not as strong, hopefully we won’t end up in a war with China…
@ Peter – Cash doesn’t fare well against inflation either. Cash goes into the red in 1935 and doesn’t recover in real terms until 1999.
This piece needs updating but it still accurately illustrates how cash struggles against other assets:
https://monevator.com/uk-historical-asset-class-returns/
Cash is less risky as Naeclue says but that also means it’s liable to earn less over time.
That’s probably fine if your holdings are greater than your likely needs and it’s just a case of defending what you have. If you still need growth then cash may not be enough.
@ Jonathan B – it’s an index of total bond returns. So imagine the return of 20-year gilts tracked over time.
Actually, it’s worth bearing in mind that the benchmark data for UK gilts is long bonds.
So if you went through this in a shorter duration fund it wouldn’t be as bad. Still not great though.
https://monevator.com/bond-duration/
@Jonathan B, “I assume the graph represents prices for some sort of standardised and completely hypothetical bond.”
Actually I think the prices may be for undated stock (Consols/War Loan), hence long duration. They continued right through until called when George Osborne was chancellor. Undated stock comprised a significant proportion of government debt back then.
I have a time series for 10y gilts, which as you say is a constructed hypothetical bond. That shows a similar pattern to the one in the article, but nowhere near as severe. The 1972-1974 real terms loss for 10y gilts was about 15%, compared with the 46% in the article. That compares with about 3% on cash (treasury bills). All better than the FTSE all-share which lost over 70%.
A Global bond fund, hedged to the pound such as VAGP, had it existed would have done better than 10y gilts because of the shorter duration. VAGP has average duration of 6.9 years and lost 14% (nominal) last year, compared with the Vanguard gilts fund VGOV, with current average duration 10.9 years, which lost 27%. VAGP would not offset losses on equities as well as VGOV though in the more usual situation where bonds go up when equities go down.
I invested in bonds for many years, but looking back I did it during a very favourable period. I held a ladder of gilts from about 7 to 13 years, aiming for an average of 10 years, plus some long duration US treasuries. If I was 60:40 now I think I would shorten that duration. VAGP, plus some cash and unhedged intermediate US treasuries is I think probably a good compromise. I would not want any foreign currency exposure with my current 90:10 allocation though as I already have plenty in the equities.
I take back my comment on the chart being based on undated gilts. @TA has clarified that it is based on 20y gilts. Same issue though – long duration. Shorten that and they will not be quite so frightening when they do fall off a cliff.
@ Dave Tetlow – I personally don’t think that ditching bonds wholesale is the right move and that’s not what I’m doing. I don’t hold 40% bonds and would be even less inclined to hold 40% cash.
Your allocation depends heavily on your personal circumstances but I think the evidence suggests it’s a good idea to diversify across bonds, cash, gold, and possibly index-linked gilts. If you wanted to do that then you could just add additional holdings alongside a LifeStrategy fund.
These pieces may help:
https://monevator.com/60-40-portfolio/
https://monevator.com/defensive-asset-allocation/
https://monevator.com/diversified-portfolio/
https://monevator.com/decumulation-a-real-life-plan/
@ Naeclue – it’s great to have the 10-year gilt info. Thank you for that! It’s a better analogue for the kind of intermediate bond fund many people will own today.
I’ll throw this in cos if anyone will be interested it’s you… Macrohistory database gilt total returns are based on:
1870-1901 perpetuals
1902-1989 20yr gilts
1990-2015 15 yr gilts
2016-2020 10 yr gilts
Sorry, gave the wrong numbers earlier. End 1972-1974 10y gilt real (RPI adjusted) total return was -25%, cash -7%.
@TA, interesting thanks. That gilts database crudely reflects the decreasing maturity profile of UK debt through time.
Thanks @TA for answering my question. I have another tangentially-related query: what do you think the odds are of those pesky long-dated inflation-linked bonds (like the Vanguard UK Inflation-linked Gilt Index Fund) eventually recovering from the massive losses sustained over the last year or so? If someone hypothetically held some of those, would they be overly optimistic to hope that they’d recover their losses if they held the fund for the long-term? Perhaps hoping for capital gains once interest rates are eventually cut?
@Wodger — Morning! 🙂 I’ll leave @TA to answer your question more specifically if he has time, but just on this point:
I understand where you’re coming from and it’s a natural way to think about your portfolio.
However it’s not the right way to think about it. 🙂
The market doesn’t care what price you paid for your index-linked gilt fund. The universe doesn’t care.
Your future self shouldn’t care. 🙂
What does matter is (a) the prospects for the index-linked gilt fund going forward (b) how those prospects compare to other asset classes you might invest in instead (c) even given your answers to the first two points, would you still want to hold the fund for diversification benefits (so you might expect it do worse than shares, say, but you’re on-board with it doing better from time to time and diversifying your holdings)
This might seem very pedantic, but it’s a crucial shift in thinking.
Don’t think about sunk costs when it comes to either losses or gains on your portfolio.
Think about the assets on their own merits, going forward from today. Not what you happened to pay. Again, the universe doesn’t care if you made a profit or loss. It’s irrelevant to their attractiveness or otherwise as a buy/hold/sell today.
As a passive investor, you’ll probably mostly want to think about how this asset fits into your overall diversification and, to a lesser extent, its relative valuation and expected returns from now going forward.
Cheers!
@TI — thanks for your insightful reply! I had been subconsciously entertaining such notions, but you’ve spelled out this perspective very clearly. I guess I’d been mislead by the “hold your nerve in a downturn and don’t crystallise your losses” mantra that is commonly applied to equities. But you’re absolutely right.
In light of this, and apropos of nothing, what do you think the future prospects of long-dated index-linked gilts are? 😉 (Not seeking personal advice, of course! Purely hypothetical.)
A slight detour, but I have just noticed that InvestEngine categorises Vanguard’s UK Government Bond ETF, VGOV, as an Alternative investment. VGOV is not shown in their long list of bond ETFs. Until now I could not think of an ETF that is more bondy or less alternative than VGOV. Are they on to something?
As ever a fascinating and useful discourse….
I’ve got no idea on the outlook but even so 🙂
I’m pretty wary of conventional bonds although I agree they have a place.
Inflation seems to be stickier than people forecast and situation in Ukraine does not appear to be resolving itself anytime soon.
Interesting to see the likes of McDonalds and Nestle today / yesterday announcing price rises. And those are just the public ones.
Plus London Bus Drivers recently settled at a 18% pay increase – murmurings of other pay settlements coming soon now.
Point being that’s not conducive with a back to 2% inflationary environment.
Equities are therefore going to be a better bet longer term than bonds in that environment one would think even though in real terms they may struggle.
After a shocking last year, I suspect ILG may soon start outperforming – interest rate rises / gilt yield rises come to an end so the duration effect dissipates leaving them to be rebased by inflation.
Cash at current rates with zero duration look more attractive to me than 10 year gilts. If interest rates fall unexpectedly from here you can get the benefit from equity re-ratings without the tail risk in your bonds that it all goes south.
imho only!
Remember it’s not inflation per se that matters for bonds. It’s inflation that’s worse than expected.
The bond market started to recover in 1975 even though inflation was worse than ever at over 24%. But real yields were ahead of the curve so interest rates started to subside.
@ Onedrew – sounds like some wag’s verdict on UK gilts post-Truss.
@ Wodger – yes, falling real yields would give you a capital gains boost again for a while.
Interesting discussion again.
@TI’s post (#25) is really deserves a whole article.
(Sidenote – as a “passive” investor, why would one consult history to learn that 60/40 was great, but choose to ignore the lesson from history that valuations determine the future risk/return profile…)
I think @SF’s scenario of sticky inflation (#28) has a significant probability to happen, so I want to be prepared for it.
I wouldn’t put more than 60% of my savings into the traditional stocks & bonds mix. Bonds surely have re-gained their place again but they can’t be the only defensive asset.
So, say 45% of the total portfolio in stock index funds and 15% in conventional govt bonds.
The remaining 40% of the portfolio need to both hedge stock market risk and protect the open inflation/duration flank.
So. a mix of commodity stocks, gold, defensive hedge funds (global macro/long vol & diversified trend following), short-duration TIPS, cash.
Thanks for sharing this information about the Gilt Bear Market. That’s quite a long period to test your patience as an investor.
Also thanks for linking to the database where this comes from. I can see data for a lot of other countries to play with!
Cheers!
DGI