When Money Markets Outperformed the S&P 500?

Hey there, savvy investors! Today, we’re stepping back in time to the funky ’70s, an era marked by bell-bottoms, disco balls, and some interesting twists in the financial world. Picture yourself in the shoes of our protagonist, Sarah. She’s a smart cookie with $10,000 burning a hole in her pocket, and she’s ready to make a splash in the world of investments. But where should she park her cash? Let’s dive in and find out!

Setting the Scene:

Back in the ’70s, the financial landscape was a bit like a wild rollercoaster ride. Inflation was soaring, economic uncertainties were swirling, and investors were left scratching their heads, wondering where to put their hard-earned dollars.

Option 1: The Money Market Miracle:

Sarah, being the prudent investor that she is, decides to dip her toes into the serene waters of the money market. With its stable returns and minimal risk, the money market seemed like a safe bet in a sea of uncertainty. She watches as her $10,000 investment steadily grows over the decade, providing her with a sense of security and peace of mind.

Option 2: Riding the Stock Market Wave:

But Sarah is no stranger to adventure. With dreams of high returns dancing in her head, she considers diving headfirst into the unpredictable waters of the stock market. Despite its ups and downs, the allure of potentially skyrocketing profits is too tempting to resist. So she takes the plunge, holding onto her stocks through the turbulent ’70s, riding out the storms and enjoying the occasional windfall.

The Verdict:

As the decade draws to a close, Sarah looks back on her investment journey with a sense of satisfaction. Both the money market and the stock market offered their own unique advantages and challenges. The money market provided her with stability and predictability, while the stock market offered the potential for higher returns but with greater volatility.

Lessons Learned:

So what can we learn from Sarah’s investment adventure? Well, it’s all about finding the right balance between risk and reward. Whether you’re sailing the calm waters of the money market or riding the waves of the stock market, it’s important to stay informed, stay diversified, and stay true to your financial goals.

Final Thoughts:

As we bid farewell to the ’70s and sail into the future, let’s remember the lessons learned from Sarah’s investment journey. Whether you’re a seasoned investor or just dipping your toes into the world of finance, may your investments be as groovy as the disco beats of the ’70s!


Now, let’s recalculate Sarah’s investments with the S&P 500 annual returns for the 1970s:

Investing in a Money Market Fund:

– 1970: The average annual yield for money market funds in the early 1970s was around 6%.

– 1971-1980: Over the decade, the average annual yield fluctuated but remained relatively stable, averaging around 5-8%.

Given these yields, Sarah’s $10,000 investment in the money market fund would grow as follows:

– By the end of 1970: $10,000 + ($10,000 * 6%) = $10,600

– By the end of 1980: Assuming an average annual yield of 6%, her investment would grow to about $17,908.

Investing in the S&P 500:

If Sarah had invested her $10,000 in the S&P 500 at the beginning of 1970 and held onto it until the end of 1980, her investment would grow as follows:

– By the end of each year, her investment would fluctuate based on the S&P 500’s annual returns.

– By the end of 1980, her investment would grow to about $14,983.77

Does This Give Enough Evidence that Investing over this period was a bad idea?

Well, let’s say Sarah was still saving for retirement and decided to save an additional $1,000/year for both strategies. What would the outcome be?

The winner would still be a money market fund over this period by about $2,000. This would give Sarah evidence that money markets performed better than the S&P 500 during this time.

Unfortunately, if Sarah doesn’t do her homework, she will be stuck in a money market forever and we all know what happens with investing over time. That’s why it’s important to have a margin of safety with a portion of your money. Essentially money you’re not risking just in case you need it.

Yet, to keep with inflation which in 1980 jumped from about 3% in 1972 to about 15% in 1980, during times of inflation, it’s best to own assets, not cash or money markets.



To Growth, Family, & Philanthropy,

Joshua Krafchick | 369 Financial

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