Wellington Fund at the Start of The Great Depression

The Wellington Fund lost nearly half its value at the start of its illustrious career.

Would you have stuck with it?

Well, I hope so. Because if you started your retirement with $100,000 at the beginning of 1930 and invested 80% in the Wellington Fund and 20% in 10 year Treasury Bonds by the time 1960 rolled around you’d have $112,205 left in your portfolio. Oh, and by the way, that’s taking 5% out of your portfolio initially and adjusting for inflation each year thereafter.

You heard that right, that’s a 5% distribution rate and nowhere did you come even close to running out of money! Did I say you retired in the Great Depression??? I find this to be amazing. There are a couple lessons to be learned here which I’ll share with you at the end of this email.

80% Wellington Fund / 20% U.S. Bonds

The strategy was pretty simple too; Start with 80% in Wellington Fund, 20% in U.S. 10 Year Treasury Bonds. After the first year, take $5,000 from whichever was up most. Adjust your distribution amount each year with inflation and take it from, again, the account that did the best.

Rinse, wash, repeat.

By the year 1941 rolled around the bond side of the portfolio ran out of money. No worries, the Wellington Fund took it from there.

You may have heard that the 1930s were quite bad for stocks. Here is the Wellington Fund year by year. Notice the huge losses as the start of the decade, followed by some real nice gains only to be met by the buzzsaw of 1937. All in all, the 1930s are like New York City, if you can survive it, you can survive anything…

Wellington Fund Returns In The 1930’s

After the bonds were exhausted, the entirety of the distributions came from the Wellington Fund. However, because you were able to avoid the dreaded “sequence of return risk” in the beginning of your retirement by taking your annual distributions from the bonds, you did just fine.

This second column from the right shows the ending balance of the Wellington Fund by year end. The last column on the right shows the ending balance MINUS the distribution amount. Not too shabby, if I do say so myself.

Wellington Fund After Bonds


You started the GREAT DEPRESSION (!) with $100,000. You ended 30 years later with MORE than $100,000, starting with a 5% distribution rate.

Again, just amazing!

Okay, so what is ultimate the issue here? Well, having the bonds (or cash) to offset the huge declines in your stocks to start retirement is huge. No two ways around this. I sent you an email recently that if you took 5% initially and adjusted for inflation each year SOLELY from the Wellington Fund you’d have run out of money by 1958. So, sequence of returns DO matter.

Inflation During Great Depression

But you can’t overlook the fact that what cost you $5000 in 1930 only cost you $4,065 by the time 1940 rolled around. That deflation, i.e., the literal meaning of the Great Depression, turned out to be a saving grace for portfolio sustainability.

In fact, think about it like this. What have I ALWAYS been preaching about retirees spending? Does it go up, down, or sideways? Well, as I stated in my new book,

retiree spending typically goes down…and a lot too; Similar to what happened in the 1930s, where $5,000 in spending in 1930, adjusted for inflation, was around $4,000 ten years later.

Today, retiree spending declines not because deflationary pressure like the 1930s. But rather because people grow older and less eager to do the same things they did previously. The reason for spending decreases is irrelevant, of course, the critical point is that when folks withdraw less as the years go by, their portfolio has more staying power.

The more I think about this, the more surprised I am the 1930’s have been so neglected when it comes to retirement planning research. This decade has EVERYTHING a researcher wants, horrible negative returns to start the decade, with a 2008-like year near the end. The 1930’s look freakishly similar to the 2000’s, in fact.

Bond yields in the 2000’s were much higher than the 1930’s but so was inflation, basically a wash.  And if you could survive the one decade, you most likely were able to survive the other. But again, we look at the 1930’s as this calamity of untold proportions for investors. That simply is not true.

Now this realization has settled in for me, I know to use the 1930’s as a proxy for a retiree with declining spending needs. It is a wonderful thing to behold.

The Inflationary Monster Comes Next

However, the monster is still lurking. He will be born in 1966 and will devour many retirees over the next 16 years. He is my next challenge. If he can be slain, without complexity just by using the Wellington Fund and 10 Year Treasuries, I might just have to call this a career. Gotta go out on top, no???

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