Investing during War Time: Vietnam and Today
When Charlie Mayer was 15, he knew he wanted to work on Wall Street. After graduating from college in 1969, this New Yorker started his career working part-time in the back office of a Wall Street firm.
But then came Vietnam and the draft.
"I got out of school in '69, started in the business in '69 and got drafted in '69, " says Mayer, now portfolio manager on a handful of INVESCO funds and director of value and fixed-income investments. " So, it was kind of an interesting period of time for me."
It was also an interesting period of time for the stock market.
During the first year of the Vietnam Conflict, in 1964, the Dow Jones Industrial Average ended that year at 874. For the next few years it bobbed between a year-end close of 785 in 1966, and 1020 in 1972 . When the cease-fire agreement was signed in 1973, the DJIA ended that year at 850. One year later, it closed at 616.
Each war that the United States has been involved with has had its own unique impact on the stock markets and the economy. Here's more from Mayer about how Vietnam effected the economy then and how investors might look at it today:
Q: What were the markets like before the Vietnam Conflict began?
Mayer: It was a fairly good market environment. The economy was pretty good but as we got more and more involved in the war, things got a bit more disconcerting and the economy began to slow.
Q: What did the Vietnam War do to the economy and investment trends?
Mayer: It finally ground the economy and the markets to a halt and we came into the 1973-74 bear market with high levels of inflation and high energy prices. We had price controls put in my Nixon on the steel industry and then an oil embargo. Real estate investment trusts totally collapsed, banks that went under, dividends were being cut left and right and by 1973-74, it seemed like every stock was going to zero.
Q: What about interest rates?
Mayer: The oil embargo just exacerbated things on the inflation front and you had 15 percent short-term interest rates. But the one thing that saved the economy from really collapsing was that maybe 15 percent of the population was invested in the market at that point in time. But, you didn't destroy a lot of individual wealth because you didn't have a lot of people interested in the market or invested.
You had a high interest rate, high inflationary environment, but you didn't really murder the economy ---or individuals---because of the fact that not that many were invested in the market.
Q: About how long did it take for the markets to recover?
Mayer: It took about eight years of backing and filling and base-building where basically small- and mid-cap stocks did somewhat better (than large-caps). Only in 1982, did the market start to move once again.
Q: Are stocks always the best place to be invested?
Mayer: Too many investors get carried away with the idea that equities are always the best place to be because they've always provided the best returns. Well, maybe that's the case over a 10 to 20 year period. But you've got to know what your time frame is. If you've only got five years to invest, maybe equity aren't the place for you.
Q: What's an investor to do right now?
Mayer: I don't' think an investor should really change anything, if they've got a reasonable financial plan. They should also know what their tolerance for risk is, recognize that they can't chase fads, momentum and trends and understand what they own. In today's markets, they've also got to lower their expectations.
You're not going to get what you got in the 1990s ( from your investments). Now you've got to work for your money, once again, and that may mean doing some of your own research or working with a broker or advisor that you're comfortable with.
So, you've got to have realistic goals and work within the context of what the markets are telling you today. Not base your plan on what they've done for you in the past.
Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.
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