On a recent trip to my parents’ house, I sifted through crates of childhood junk that my mother had cleared from the attic. One item in particular caught my eye—an “official program” from a New York Mets game in 1980.
Steve Henderson, the Mets’ clean-up hitter, was on the cover and profiled in a piece titled “You don’t need homers to win.” True enough. And Henderson didn’t hit many. Then again, the Mets didn’t win much in 1980.
As a Vanguardian, however, I was interested less in baseball history than in the investing lessons this piece of memorabilia might impart. I found two.
At Vanguard, we often talk with clients about the need to retain some exposure to stocks in their retirement years. Stock prices can be volatile—a negative for those living off an investment portfolio.
So why take the risk? Because stocks offer potentially higher returns than bonds and other less volatile assets, and many of us will need higher returns to keep pace with the rising cost of living once we stop working.
The argument makes sense, but it can seem somewhat abstract … until you look at the price of a 1980 Mets program: 50¢, including tax. This past season, a Mets program cost $5.00. That’s an average price increase of 7.46% per year.
Some of that increase reflects the growth in pro sports’ economic footprint— bigger paydays for the players and in turn higher prices for the fans. Some of it reflects the general rise in prices. Since 1980, the consumer price index has risen by an average of 3.23% per year, wiping out about two-thirds of a dollar’s purchasing power over the 32-year stretch.
An investment in bonds and stocks would have helped an investor keep pace with rising prices. During this particular period, in fact, the broad U.S. stock and bond markets outperformed the rally in Mets program prices. (Today, as bond yields hover near historical lows, prospective bond returns look much more modest. Bonds nevertheless remain important portfolio diversifiers.)
Source: Vanguard. Stock returns represented by Dow Jones U.S. Total Stock Market Index; bond returns by Barclays US Aggregate Bond Index; inflation by consumer price index. Inflation based on consumer price index.
Dynamism and diversification
The second lesson was less obvious, but no less important: the need to diversify across the stock and bond markets.
The 1980 program was filled with ads for brewers, banks, and oil companies that either no longer exist or have shape-shifted beyond recognition. Many of the goods and services we buy have changed. The program included an ad from New York Telephone (since absorbed by Verizon) for a cutting-edge sports-information service: No, not an app for your smartphone, a “999” number you could call for a recording of the latest sports news.
Our economy is dynamic. In 1990, technology stocks accounted for just 6% of the value of the S&P 500 Index. Today, tech stocks account for more than 19%. Telecom services, which represented 9% of the index in 1990, make up less than 3% of its value today. Can I anticipate and capitalize on these changes? I doubt it.
Fortunately, I don’t have to. Broadly diversified stock and bond funds give me exposure to all sectors of the economy, both those on the rise and those in decline. My fortunes aren’t tied to the success of a telephone technology that may not stand the test of time. They rise and fall with the health of corporate America and businesses around the globe.
Notes: All investing is subject to risk, including possible loss of principal. Diversification does not ensure a profit or protect against a loss. Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.