Wade Pfau's stock market drops > 50% in inflation-adjusted terms - 20 countries

[BP]

http://wpfau.blogspot.com/2014/01/greatest-hits.html

[Ad Orientem]

Now that is a sobering post that should be copied to every stock bug out there.

[Pointedstick]

World wars turn out to be bad for your stock market, it seems.

[k9]

That's a great chart ! No wonder stock bugs on the forums seem to be from USA, by the way. You guys seem to have avoided bad times, up to now.

I wonder what a treasury bond market drop would look like, though. In some places, it clearly dropped 100% with governments defaulting (which seems to have never happened with stock markets according to OP's data) in in others, it was close (Germany's LT bonds investors from 1923 probably had a hard time with their "riskless" asset).

[systemskeptic]

(which seems to have never happened with stock markets according to OP's data)

It has happened several times in the last century, OP excluded these events from his data.  Equity losses of 100% can, and have, happened.

[Jake]

Wade has updated his analysis to include the bond market:

http://wpfau.blogspot.mx/2014/01/greate ... arket.html

[Bean]

Wade has updated his analysis to include the bond market:

http://wpfau.blogspot.mx/2014/01/greate ... arket.html

Makes you wonder how to prepare for stuff like this. The 50/50 chart should scare the bejesus out of most common investors.

[craigr]

Wade has updated his analysis to include the bond market:

http://wpfau.blogspot.mx/2014/01/greate ... arket.html

Makes you wonder how to prepare for stuff like this. The 50/50 chart should scare the bejesus out of most common investors.

You need to be diversified geographically. That's pretty much it. And yes, that goes for U.S. investors as well!

[k9]

Wow. Even a PP investor would have been decimated in quite a few occurrences, with almost only his gold left. Must be pretty hard to rebalance in those circumstances. Your bonds & stocks lost 90% and 95% of their respective values ? Why don't you sell 3/4 of your gold to buy some more ?

Craig, isn't geographical diversification (at least for cash & bonds) discouraged in the PP theory ?

[modeljc]

Wow. Even a PP investor would have been decimated in quite a few occurrences, with almost only his gold left. Must be pretty hard to rebalance in those circumstances. Your bonds & stocks lost 90% and 95% of their respective values ? Why don't you sell 3/4 of your gold to buy some more ?

Craig, isn't geographical diversification (at least for cash & bonds) discouraged in the PP theory ?

I am wondering about this also.  I only have VTI.  A lot of the comnpanies are global.  But WOW!

[craigr]

Wow. Even a PP investor would have been decimated in quite a few occurrences, with almost only his gold left. Must be pretty hard to rebalance in those circumstances. Your bonds & stocks lost 90% and 95% of their respective values ? Why don't you sell 3/4 of your gold to buy some more ?

Craig, isn't geographical diversification (at least for cash & bonds) discouraged in the PP theory ?

Mostly if you look at those countries they were hit by wars, etc. causing a number of their problems. Things like WWI, WWII, internal revolutions, etc.  At least for most of those European countries and Japan.

So really at that point even if you lived in that country and happened to own stock/bonds elsewhere you probably still were in trouble. You really would want to have some gold held outside the country to be sure what you owned wouldn't be seized or lost due to circumstances. It would be the stable asset when the bonds/stocks are suffering. Plus it would be a last-ditch safety net for you and your family.

Nothing is perfect and there are no magic bullets. If your country is having major internal/external upheavals due to wars, revolutions, etc. you need flexible options to respond. So it's not so much at that point of holding foreign bonds. It's probably more about assets you can access if you have to leave.

For the other countries where nothing like that happened, yes I think there is a case for geographical diversification in terms of the investments owned. But I don't think myself that distributing bond risk across a bunch of countries is the solution. As you can see, you could buy bonds from another country and you are instantly pulled into their internal politics as an outsider. Mostly if I were to diversify internationally I'd be more inclined to do it with stock/real estate ownership overseas than buying government bonds. Plus of course gold that is held overseas in a stable first-world country and not a third-world toilet.