Stock returns and real yields: 1970s

A couple concepts I’ve been playing with.

1: The following chart plots the long term growth of $10,000 invested into the S&P 500 (orange) against periodic market drawdowns (black), both on the same timescale.

This is meant to illustrate that while drawdowns are quite painful and dramatic, over the long run they don’t detract from the ability to build wealth.

I built this chart today and I’m looking for feedback – I’m not convinced it’s totally clear or well illustrated. Please let me know your thoughts.

2: I also created the chart below comparing S&P 500 total returns with real yields (Treasury bond yields minus CPI) during the 1970s. Using a historical inflationary period, I wanted to see how markets reacted to dramatic changes in real yields.

As you can see, big declines in real yields into negative territory (in these cases because inflation spiked) correlated with a significant bear market. In contrast, when real yields began to recover (risk-free assets once again provided a premium over inflation), equities rallied.

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