If you're old enough to remember the 1970s, today's economic and market conditions may give you a sense of déjà vu. Unfortunately, the '70s weren't a happy time for most people trying to earn a return in the stock market.

Could what happened to investors in the '70s happen again? SMI's executive editor Mark Biller talked about that with host Rob West on yesterday's MoneyWise, heard on American Family Radio. Mark also answered questions from callers. 

The audio is below. Scroll down for a transcript.

American Family Radio airs MoneyWise weekday mornings. A different version airs weekday afternoons on Moody Radio.

For more radio appearances by members of the SMI team, visit our Resources page.


Transcript

Rob West:
If you’re 50 or older, you might think history is repeating itself — that we’re seeing many of the same economic conditions as the 1970s. I’ll talk about that today with Mark Biller. And then it’s on to your calls at 800-525-7000. This is MoneyWise on American Family Radio — biblical wisdom for your financial decisions. (theme music ends)

Well, our guest today is Mark Biller. He's executive editor at Sound Mind Investing, and he’s probably too young to remember much about the 1970s. But he’s certainly been studying the economics of that period — and, Mark, great to have you with us.

Mark Biller:
Hey, Rob! It's great to be with you today.

Rob West:
Mark, we’re looking at an article you wrote for the latest SMI newsletter called 1970s Redux? What exactly are the similarities between now and the 1970s?

Mark Biller:
Well, there are quite a few Rob. You know, we've got soaring energy prices today. We've got this relentless inflation for the first time, really, in a few decades. And now we're seeing slowing economic growth. We've got a stock market that's coming off a long period of really impressive gains, and even more specifically that market has been led by a relatively small group of these seemingly invincible growth giants — the Faang stocks: [Facebook,] Apple, Amazon, Google.

And so I'd say — big picture — the last significant pivot that the market has seen from a low-inflation environment to a higher-inflation environment happened in the late '60s. So it's pretty natural then that today's investors are looking back to that late '60s—early '70s period to study the similarities because that's really the last example of this type of inflationary surge. And as they're doing that, they're finding these similarities and things in common.

Rob West:
So what does that mean then for investing?

Mark Biller:
Well, you know, the big thing that jumps out to a stock market historian of any type when you start talking 1960s / 1970s, is the stock market basically flattened out for 16 years between 1966 and 1982. So the Dow Jones industrial average — the big index of that era —was [at] the same [level] in 1982 as it was in 1966.

And that actually overstates how well the market did, as poor as that sounds, because you had this really high inflation through that period, eroding the value of those dollars. Suffice it to say then, it really was not a good time to be a stock investor at all.

So getting to this article that we wrote, the main point of the article actually was not to say, "Hey, we're going into another period like that — 1966 to '82 period." Maybe we are, maybe we aren't. But the main point was really to alert our readers that there are these long pauses and market history and they aren't really as uncommon as you'd think.

So, there's a chart in this article — and if, if listeners are interested, this article is at soundmindinvesting.org, you can see this chart — it shows the performance of the stock market going all the way back to 1930. And it makes some adjustments to the chart so it's not the typical just swooping up and to the right kind of stock market chart that most of us have seen. But it actually averages things out a little bit in a way that makes some of these moves a little bit more visible, these historical moves. And what the chart shows is over the last 90 years, the market has moved through several of these really distinct bullish — meaning upward — periods, bearish —downward — periods. And there are some of these comfortably long periods where the market just flattened out.

Rob West:
Yeah. Well, we'll continue to unpack that, Mark, [and] talk about the implications of these sideways markets. What effect do they have on investors? What do we need to consider if we're in an extended bear market as well.

Mark Biller with us today on American Family Radio. This is MoneyWise — and we'll be right back.


Rob West:
Mark, before the break you were talking about this article that you all have written recently called 1970s Redux?, as you look at the similarities between now and the 1970s in terms of the market. And you were explaining, just before the break, a really interesting chart that you all produced as a part of this that really normalizes some of these large movements of the market to a different scale so you can see these distinct bull/ bear, but also sideways periods. Explain a bit more about what you've done.

Mark Biller:
Yeah, you know, most investors, I think, are pretty aware that the market occasionally goes through these really big, long rallies. We call them "secular bull markets." And a lot of investors are familiar that we had one from 1982 till 2000. We had another one from 2009 until last year, 2021. But what a lot of investors aren't quite as familiar with is these "secular bear markets." Now that can be a little misleading because we're not talking about a period where the market just goes down in a straight line for many years. That rarely ever happens. But we do have these sideways periods like we were just talking about — 1966 to '82 was one, and 2000 to 2010 was another.

Now, what these periods usually look like is they're flat over the whole period, but they're punctuated by smaller bull and bear markets within that longer period. So for example, between 2000 and 2010, we had two big bear markets of 50% down each, but over the whole decade, the market was roughly flat. So those are what we're talking about with these secular bear markets.

Rob West:
Yeah, really interesting. Mark, what effect do these periods have on investors? I suspect it affects sentiment and a whole lot of other things.

Mark Biller:
Yeah, absolutely. Usually, you come into one of those periods with investors extremely optimistic and valuations of stocks very high as a result. And over that kind of long, grinding period, a lot of that optimism wears away. And the price that investors are willing to pay for stocks also grinds down over time, which affects measurements like the price-to-earnings ratio usually comes down — that sort of thing.

In terms of the direct impact on investors, one of the things that we're watching is there's been a pretty big shift over the last 20–25 years where a lot of today's investors really have bought into "buy-and-hold using index funds." That's kind of a dominant strategy today. And when you see periods like this where the market really doesn't go anywhere for a decade or longer, that's not gonna be great for that type of approach.

So, you know, seeing these — and the point of the article again was just to point out these do come along from time to time — and if we are transitioning from a low inflation environment back to a higher inflation environment, then we need to consider the possibility that we could see that type of market ahead. But that doesn't necessarily mean that we need to worry about that type of transition. We just need to be aware that it could be coming

Rob West:
In the article, Mark, you make the point that we need to consider or factor in these secular bear markets you're describing. What does that look like as an investor to consider that in the equation?

Mark Biller:
Yeah, Rob, I think there are two key questions really that are gonna heavily influence how a person views this type of "market plateau" possibility. And the first of those questions is, "How long is your investing timeframe?" A 40-year-old investor with decades ahead of them is gonna react pretty differently — or at least they should — than maybe a 60-year-old investor who's thinking about retiring soon. This type of market is clearly more of a threat for a retiree or a near-retiree because they have a shorter investing time horizon.

You know, on the flip side, a younger worker looking at a decade of stock prices really not going anywhere, that's actually good news. Because that's a really good opportunity for a younger person to load up on shares at reasonable prices before the next big secular bull market pushes those prices higher again.

But you know, for retirees, it may not be quite as dire as it seems at first, because most retirement timeframes these days do extend out, at least 10, 20 years, maybe even longer. So it's not the best for those already in retirement, but the silver lining for those folks is they are coming off a long period of big increases in their portfolio recently.

Rob West:
Yeah. That's helpful. Mark, obviously inflation is a factor here, as you said. It was a factor in the '70s as well. It looks like getting back to the Fed's 2% inflation target is not in the cards anytime soon. How does that play into this?

Mark Biller:
Yeah. You know, that is a huge variable in all this Rob, and a big wild card at this point still — because we really don't know, is this gonna be the kind of thing where we get the inflation rate down, but it levels off at say even 3 or 4%, which would be a lot better than today, but still about double what we've seen over the last decade. That would have a big implication in a lot of that implication might be on what types of stocks do well over the coming years.

You know, this last 12 years, this big bull market run that we've had has largely been led by technology stocks. They really benefit from an environment of low inflation, very low interest rates as a result, and when you have that type of low-interest rate environment, companies that can grow earnings in a big way out into the future are really prized. When that flips and you have more of an inflationary environment like we had in the '70s, investors tend to favor companies that make real stuff, stuff that hurts when you drop it on your foot. And so those types of stocks have really been out of favor for the last decade. We've seen just in the last year or two, energy stocks and things like that come a little bit back into favor. But still historically they look really cheap relative to technology stocks and those valuations. So that could be one big implication if inflation does stick around and is more sticky in the years ahead.

Rob West:
Yeah, very good. All right. Well, I've asked Mark Biller to stick around for a bit longer to take your calls and questions. We've got phone lines open: 800-525-7000. When we come back, we'll take some of your questions. We'll also talk to Mark about whether this is a time to move from passive to active management if we're gonna see, perhaps, one of these secular bear markets.

Mark Biller with us today on MoneyWise on American Family Radio. Stick around, we'll be right back.


Rob West:
Great to have you with us today. Investing expert Mark Biller our guest today. He's also executive editor at Sound Mind Investing. You can check them out at soundmindinvesting.org. And while you're there read this article we've been talking about today. It's really well done by Mark and his team as they've done extensive research and analysis on whether or not we're potentially going to repeat some of what we experienced in the 1970s. The article is entitled 1970s Redux?, and you can learn more there.

We're also taking your calls and questions today, specifically on investing for the next segment or so — Mark Biller here to answer your questions. What are you thinking about in terms of your investments, your investment strategy? We'd love to hear from you — 800-525-7000. To Georgia we go. Lee, thank you for your patience. Go right ahead.

Caller:
Hi, good morning. Thank you for taking my call. My question is — I've been putting in 10% into my 401(k) 5% Roth, 5% 401(k). And in the last year, I've actually taken a personal rate of return at –17.19%. So my question is, should I reduce what I donate or what I give, excuse me, to 5% and take that other 5% and put it somewhere else until the market gets better?

Rob West:
Yeah. Mark, your thoughts on how to navigate a market like this with regard to 401(k) contributions?

Mark Biller:
Yeah, absolutely. Lee, let me ask you one thing: Do you have all of that money invested in stocks right now or is it split between stocks and bonds and maybe some other things?

Caller:
Honestly, I believe it's just stocks. I just signed up for the 2035 [fund].

Mark Biller:
Okay.

Caller:
So it's all in that.

Mark Biller:
Yeah, okay. Good. Well, those target-date funds — those are really helpful because they are allocating the money for you between stocks and bonds in a way that is roughly appropriate, hopefully, based on the year that you pick of when you intend to retire. So one thing that you could do, Lee, if you wanted to reduce the risk a little bit would be to either take a little bit of that money out and put it in a bond fund option within the plan. Or you could pick a year that is a little bit further out — I'm sorry — a little bit closer, actually, would make it more conservative — so like a 2030 fund or a 2025 option would make that a more conservative blend.

Now that said, I would not encourage somebody to lower the amount that they're contributing to the 401(k) overall. If a change is gonna be made, my suggestion would be that they would alter the mix of assets within their account, but in the way that we're talking about — maybe allocating a little bit more to bonds in the short term until this market period kinda smooths out. But you don't really want to cut your overall contributions because there are limitations on those and you may not be able to make up that difference later on by just contributing more.

So I would encourage you to keep the contribution steady. If you feel the need to get more conservative, the best way to do that is by altering the mix — less stocks, more bonds. But I wouldn't go too, too heavy because we are already a decent ways into this bear market. Some people think it's over, others are not so sure. But either way, we're already down a decent amount. So I wouldn't want somebody to completely get out of stocks and go a 100% percent bonds at this point. But it is possible to fairly easily alter that mix within your 401(k) and make it a little bit more conservative in the short term.

Rob, do you have anything to add to that?

Rob West:
Well, I completely concur. You know, Lee, it sounds counterproductive and yet, as Mark said, this is the time when the market's down to be a "Steady Eddie" in terms of continuing to dollar cost average into the market. And if in fact that 2035 target matches your retirement, that's probably about a 70/30 — 70% stocks, 30% bonds — that's probably right. So unless you just have a real concern or lack peace of mind you know about this, I'd probably stick with it at least until the market recovers, and then begin, as Mark said, to move more conservative. But as long as you keep that contribution the same, if you felt better going ahead and getting a bit more conservative, you certainly could do that. We appreciate your call today.

To Mississippi. Pat, thanks for calling. Go right ahead.

Caller:
Oh, thank you. I am 72-and-a-half. I have a retirement fund that I've contributed to — my boss has contributed to — through American Funds for 20 years. And there's probably, we took — my husband and I — we took $50,000 out of that and bought a CD several years ago. It matures before the end of the year. My husband passed away last October and I'm going to be getting a $30,000 insurance [benefit] for him. I'll have that mandatory draw [Required Minimum Distribution] that I have to take out of something before I turn 73. I have no clue what I should do.

Rob West:
Yeah. Well, I'm sorry to hear about your husband's passing, Pat. So you essentially will have this $80,000, the $50,000 coming due from the CD plus the life insurance. And then what's remaining in that 401(k)?

Caller:
Well, it's not actually a 401(k), it's a SEP-IRA. But it's probably about $60,000.

Rob West:
About $60,000 there. And how is that currently invested?

Caller:
It's it was originally invested — it's in the American Fnds, but it was originally invested in no alcohol, no tobacco. It's supposed to be a conservative type [fund].

Rob West:
Sure. Okay. But probably largely stocks. Let's have you do this, Pat. You stay right there. When we come back after this short break, we'll give you our thoughts on this. We'll be right back on MoneyWise.


Rob West:
Just before the break, we were talking to Pat. Pat is a 72-and-a-half. She's about to start taking a Required Minimum [Distribution]. She's a widow. She's got about $160,000 in investible assets — $60,000 in a SEP-IRA, a $50,000 CD coming due, about to receive $30,000 in insurance proceeds. And then beyond that bringing in about $1,200 a month in Social Security and has an emergency fund that would cover at least three months' expenses.

And, Mark, she's wondering, with the $60,000 that's in American Funds, perhaps largely stocks, and then this CD coming due and the other $30,000 — so a total of $80,000 — given that she's really only tapping this for "extra" expenses — that which is over and above her normal monthly expenses, maybe a trip here or there — how do you think she should think about both the $60,000 that's currently invested in then this additional $80,000 that's going to be available?

Mark Biller:
Yeah. Well, I like the way you framed that, Rob, because the key question and these types of situations really does come down to the budget and the cash-flow needs that a person has after their Social Security. So if those basic living expenses are being met without needing to tap any of these investments, then that changes the picture quite a bit.

It could be that when Pat takes the Required Minimum Distribution from her SEP-IRA this year, she'll get a handle on how much she can expect from that each year. And if all of those living expenses are being met, then the next principle that we would turn to is you don't necessarily want to take more risk than you need to meet your goals.

Now, you have to kind of balance that against the inflation situation that we have right now, because real conservative investments, like the CD that is maturing, those are losing purchasing power to inflation right now. So if inflation stays high and you are overly conservative with how these things are invested, little by little, year by year, your purchasing power is going to be eroded. And that's an argument for keeping at least some of this — perhaps just the SEP-IRA in Pat's case — invested in some stock funds, even though she's in retirement.

So a mix of, you know, those stock investments along with some good broad bond mutual funds seems very appropriate. If rolling over that CD offers some comfort, that's an option. Otherwise something on the safe side, like a short-term bond index fund might be an option for that.

But, you know, there are a lot of moving pieces here. Pat, thankfully has a lot of these boxes already checked with her budget and her cash flow needs met. But in these types of situations where you've got a lot of moving pieces, it's not a bad idea to look into getting some help and some counsel. An advisor — even on a one-time basis — can be a lot of help in a situation like this, which is why I know you frequently point folks to the Kingdom Advisors website for local help. And our SMI Advisory can also offer opinions on that too. People can find out about that at soundmindinvesting.org. But getting that game plan in place at retirement time or at a time like this, where there's some big life transitions, can really be a big help.

What would you say to that, Rob?

Rob West:
Well, I think that's well said. And so perhaps just to put a bow on that — either soundmindinvesting.org or, Pat, find a local Certified Kingdom Advisor at moneywise.org. Just click "Find a CKA."

But you're doing a great job. Let me just encourage you in that. I know Mark affirmed you as well — all the pieces that you have in place. And I think just finding the right next investment, as conservative as you want it to be for that roughly $80,000 that you're going to have available, makes some sense. We appreciate your call today.

Perhaps, Mark, I-Bonds could be an option as well. And I think that's what Sheila would like to talk about in Oklahoma. Sheila, you're on MoneyWise. Go ahead.

Caller:
Well, thank you very much. And this is my first time to ever call you. And I just appreciate what you do.

Rob West:
Well, we're delighted. You did Sheila. Thank you.

Caller:
I am interested in an I-Bond because of the interest it provides. And I'm 74 years old. I've been retired for three years. And I just wanted information. Is it safe?

Rob West:
Yeah, very good. Mark, we've been talking a lot about these. I know you all have several articles on the inflation bonds at soundmindinvesting.org, as well. Give Sheila your thoughts on the safety and whether this is an attractive investment right now.

Mark Biller:
Yeah, Sheila, I think it's a great investment right now, which is surprising to me because I haven't been super big on these for a long time. But all of a sudden, with this inflation surge, these I-Bonds are paying fantastic returns. They're up in the — I think the last I saw was somewhere north of 9% annual interest, which is just unheard of for a government bond right now.

And the fact that it is a government bond really does make it a very safe proposition. I mean, the idea that the U.S. government is gonna default on its debt in the near-term is very, very unlikely. So I think it's a great option.

There are some restrictions. It is a little bit more of a technical investment in that you have to make that investment directly through the government website. But all of those details, as Rob mentioned, we've covered that in a couple articles that our website. So if you'd like kind of a walkthrough of "What these are? "How do I do this?" If you just search for I-Bonds on the Sound Mind Investing website you'll find a good walkthrough article there that can really answer those questions for you.

Rob West:
Yeah. I totally agree, Sheila. I would absolutely take a look at them —ou can head to soundmindinvesting.org. And to place that direct investment to purchase the I-Bonds, you have to do it through the electronic I-Bonds at TreasuryDirect.gov. You can only put in up to $10,000 per person per calendar year, and you've gotta keep it in for at least a year.

That 9.62% [rate] Mark was talking about, which is fantastic, is available through November. It will adjust, probably slightly downward, when it adjusts in November, but you're still gonna be looking at a very attractive rate. Again, TreasuryDirect.gov.

We've got just a minute left, Mark. Sum up for us the work you were talking about in this article, 1970s Redux? What do we need to know?

Mark Biller:
Yeah, I think, Rob, the bottom line here is it's so easy — especially when the market's wild, like it has been lately — to have our eyes so focused on the day-to-day gyrations that we kind of lose track of these longer-term cycles. And pulling back occasionally to see the forest for the trees can be really helpful as we figure out our long-term plan.

Rob West:
Yeah. I think that's exactly right. Well, this article could help you do just that. It's called 1970s Redux? It's at soundmindinvesting.org. Mark, as always so grateful to have you, my friend. Thanks for stopping by.

Mark Biller:
Always my pleasure, Rob.

Rob West:
All right. 800-525-7000 for any financial question on our final segment, just after this break. Stay with us.