A Tale of Two Wellington Funds, With a Cautionary Note Too

I Can’t Get Over How Bad The 70’s Were For Investors…

The Wellington Fund will be the focus of my next book; working title is “Retiring On The Wellington Fund”. And in my research, it is incredible seeing the REAL numbers.

We’re told over and over how bad the 30’s were; The Great Depression era. Yet, those 10 years don’t even come close to the devastation of the 70’s.

And while I don’t try to get overly political here, the blame has to lay with Richard Nixon, who actually said “we’re all Keynesians now.” It’s odd because I bet if you took a sample of non-partisan people they’d say Carter was a worse President than Nixon.

Take a big picture view, though, in a non-partisan way, you could easily make the case that Carter, of all people, probably saved us from socialism. Carter, and even Ted Kennedy if you can believe that, deregulated industries left and right.

Reagan, of course, took the baton and thus defeated the Communist threat, even though many leading thinkers of the day predicted a different result.

“The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.” That’s Paul Samuelson, a Nobel Prize winner in economics, writing in his economics textbook in the year of 1989…..hmmm, anything big happen in 1989?

By the way, it wasn’t just socialist-leaning economists who got the collapse of the Communist system wrong, it was our very own CIA. Hard to believe right? Our CIA giving us bad data? No, Never.

(On a side note, as a budding economist myself, it was people like Samuelson who have nearly ruined the field. By taking it from an amazing study of how people interact in their economic decisions to an almost strictly mathematical theoretical approach. It’s nothing more than science-envy, truth be told. Economists want to be taken seriously as a hard science, not a social science. And thus they come up with mathematical equations that no one understands to show their hard science street cred. Yet, their equations are truly voodoo economics as witnessed by Paul Samuelson predictions of the Soviet Union. Reminds me of some other fanciful predictions made over time that continue to be proven wrong. I’ll leave it to your imagination to ponder what I’m referring to….AHHHHH, not I won’t! The climate doomsayers!)

So, going back to the Wellington Fund, let’s take a look how it did from 1930-1939. $100,000 invested at the beginning of 1930 was worth $135,000 by the end of the decade, net of inflation.

In fact, at no point had you invested at the beginning of a year in the 1930s would you have lost money 10 years later.

Yet, let’s take a look at how your investment in Wellington in the 1960s would have fared by the 1970s.

That is some ugly stuff right there. Oddly these were the ONLY 10 year periods where Wellington actually lost value net of inflation in its 88 year HISTORY.

What does that tell you? Well, it’s simple. Inflation is the threat to your retirement. There is no ands, ifs or buts for this. Inflation is devastating.

You then should take heed to any policies which are inflationary. While government spending, i.e., the Trump/Pelosi meeting of the minds, may seem inflationary, come talk to me when Japan is running rampant inflation.

But there is ONE thing which is always and everywhere inflationary. Wanna guess what that is?

Socialism. Under socialism the pricing system is removed. With no price point there is no way to legally establish true value in products and goods. Funny thing though is individual humans still know what products are more valuable to them than other products and thus black markets are created. (See Hernando De Soto’s book “The Other Path” for a wonderful accounting of how this works.) And when there is no price to discriminate between two products, one of value and one of none, there will ALWAYS be a run on the product that truly has value.

That run leads to scarcity which ultimately leads to runaway inflation. Eventually, the only way to acquire valuable products is in the underground economy, where the pricing mechanism ALWAYS exists. This is literally not rocket science. Just fundamental human nature. And sadly we have evidence of this exact thing happening over and again. Venezuela is just the current example.

So, while I do wonder about where our government’s out-of-control spending will lead, I don’t worry about that to the extent I worry that socialism has reemerged.

It’s an odd phenomenon actually. Never works but for some reason its aura is irresistible to some, many even. “Yeah, those other guys didn’t make it work. But we can! We’re smart after all…”

Interestingly is that in an inflationary environment those with debt will be in hog heaven. At least that’s the idea. Your fixed rate debt is being reduced each and every year by a decreasing value in the dollar. Thus inflation rewards debt! And governments then see inflation as a way to get out of debt. They literally inflate their way out of debt. UGH.

Thankfully lenders aren’t stupid. They may be taken to the cleaners initially on the debt they already loaned out, but it won’t happen again. They just ramp up the cost of your future debt to keep up with the decline in the value of the dollar. Pretty simple stuff, actually. Yet, the socialistic model still retains tons of adherents. Socialism is judged by its promises, capitalism by its results, as the saying goes.

Always remember, inflation is your enemy. No two ways around it. And the inflationary policies of EITHER political party, be it Richard Nixon or Bernie Sanders needs to be called out for the devastation it has, and will, cause.

© Copyright 2018 Heritage Wealth Planning