Stagflation Investing: What Stocks, Bonds, and Gold Did in the 1970s and 2022

Stagflation means inflation together with weak growth and rising unemployment. The 1970s are the standard example, and the numbers show why it is hard to invest around: from January 1973 to May 1975 the unemployment rate rose from 4.9% to 9.0% (FRED, UNRATE), real GDP shrank 3.1% from the fourth quarter of 1973 to the first quarter of 1975 (FRED, GDPC1), and consumer prices rose 12.3% in 1974 (FRED, CPIAUCNS). The Fed later pushed the effective fed funds rate to 22.36% in July 1981 (FRED, DFF), and the 10-year Treasury yield reached 15.84% that September (FRED, DGS10).

This guide is about what stocks, bonds, gold, and other assets did in that episode and in 2022, why the usual stock and bond diversification failed, and what it costs to protect against a repeat. The mechanics of individual inflation hedges, such as TIPS and I bonds, are in our inflation hedging guide.

Where does the economy stand now? Consumer prices were up 3.4% in August 2026, unemployment was 4.1%, and real GDP in the second quarter was 2.1% above a year earlier. That is fairly high inflation with solid growth, not stagflation, and 2022 was the same: unemployment stayed between 3.5% and 4.0% and real GDP grew 1.3% from the fourth quarter of 2021 to the fourth quarter of 2022. But 2022 was the worst year for a stock and bond mix since the 1970s, so it belongs in the same discussion.

Real returns in the 1970s and 2022

Aswath Damodaran of NYU Stern publishes annual returns on US stocks, bills, bonds, real estate, and gold (dataset). We converted them to real terms using the December-to-December change in the CPI. The bill series is based on the average 3-month rate during the year, and the "60/40" row is 60% S&P 500 and 40% 10-year Treasury bonds, rebalanced each year.

Consumer prices rose at 10.5% a year in 1973 and 1974 and at 9.2% a year over 1973 through 1981. Three things stand out.

• The first two years were the damage. A stock and bond mix lost more than a third of its purchasing power in 1973 and 1974, and it needed a 54% gain to get back. The next seven years recovered part of the loss, but the mix was still down 30% in real terms at the end of 1981.
• T-bills roughly held their value. Cash earned 8.1% a year over 1973 to 1981 against inflation of 9.2%, so the real loss was about 1% a year. Bills were the least bad of the conventional assets.
• Gold was the exception. It rose 73% in 1973 and 66% in 1974, and gained 177% in real terms over the nine years. Gold then fell 32.6% in 1981 as the Fed's high rates took hold, and lost 5.5% in real terms in 2022. Gold protected in the 1970s and did not in 2022. Real yields rose sharply in 2022 (the 10-year TIPS yield went from -1.04% to 1.58%), which is a headwind for an asset that pays no yield.

Damodaran's real estate column ended the nine years about flat in real terms. His page does not say whether the series includes rent.

Why stocks and bonds fell together

Diversification between stocks and bonds depends on what is driving markets. When the shock is weak growth, as in 2008, investors buy Treasuries and yields fall, so bonds rise as stocks fall. When the shock is inflation, the central bank raises rates, bond prices drop, and stocks drop too because future profits are discounted at a higher rate and because the economy slows. In that regime the two move together.

The annual data agree. The table shows the correlation between yearly S&P 500 returns and yearly 10-year Treasury returns in Damodaran's dataset.

These are annual returns with ten or fewer points in most rows, so treat the numbers as a direction and not a measurement. The direction is consistent: the diversification benefit of bonds is best when inflation is low and weakest when inflation is high.

Among the 97 years in the dataset, stocks and 10-year bonds both fell in only five: 1931, 1941, 1969, 2018, and 2022. The 2022 loss was by far the largest, at about 18% for the 60/40 mix. In real terms, 2022 was the worst year for 10-year Treasuries in the dataset (-22.8%) and one of the three worst for the 60/40 mix, alongside 1974 (-24.1% real) and 1937 (-22.9%).

The cause in 2022 is visible in the rate data (FRED). Consumer price inflation peaked at 9.06% in June 2022. The effective fed funds rate went from 0.07% at the end of 2021 to 4.33% a year later, the 2-year Treasury yield rose from 0.73% to 4.41%, and the 10-year from 1.52% to 3.88%. Duration was the exposure that hurt. In 2022 the iShares 20+ Year Treasury Bond ETF (TLT) lost 31.41% and the iShares 1-3 Year Treasury Bond ETF (SHY) lost 3.90% (TLT, SHY). Inflation-protected bonds did not escape: the iShares TIPS Bond ETF lost 12.13% (TIP) because the 10-year real yield went from -1.04% to 1.58%.

What worked in 2022

Société Générale's Prime Services unit, which publishes the SG indices, attributed the trend-following gains mostly to fixed income, currencies, and energy, and noted that the gains in bonds and currencies came from short positions in downtrends (AlphaWeek). It also found that managed futures had a negative correlation with the S&P 500 in 2022, and that 27 of the 30 CTA programs in its index made money. Commodities, including energy, rose with inflation, and short-maturity Treasuries lost little.

There are two limits. The same report calls 2022 the best annual gain for the SG CTA Index since it started in 2000, so it tests a good year, not an average one. The index only starts in 2000, so there is no comparable record for the 1970s. Trend following has to be paid for with fees and is often flat, and it would have lost money in a sudden reversal of trends. The tail risk hedging guide looks at what different protections cost in calm years. A risk parity fund that borrows to hold more bonds did not help either: the RPAR ETF lost 22.81% in 2022, as covered in our risk parity guide.

What protection costs in normal years

Illustration: $100,000 in each of four mixes, rebalanced yearly, with returns adjusted for inflation. No fees or taxes are included, and the periods were chosen with hindsight, so the table shows what each choice cost or gained in those periods and predicts nothing.

The dollar columns are what $100,000 was worth in purchasing power at the end of each period. Replacing bonds with bills limited the damage in each episode but did not prevent a loss. Adding 10% gold helped in the 1970s and about matched bills in 2022. The cost showed up in the 38 years from 1982 to 2019, when inflation averaged 2.68% and bonds did well: mix A earned 7.65% a year in real terms, and mixes B and C earned 6.01% and 6.11%. On $100,000 that is roughly $1.65 million for A against $0.92 million for B and $0.95 million for C. Anyone who held B or C for those decades gave up a lot of return to be protected against an inflation shock that did not come for 40 years.

How to apply this

1. Set bond duration on purpose. In 2022 duration was the risk: TLT lost 31% and SHY lost under 4%. A shorter duration lowers the exposure to rising rates and also lowers expected return when rates fall.
2. Own a few assets whose returns depend on inflation and not on rates. Gold, commodities, and trend following each work through a different mechanism, none of them reliably. Our commodities guide covers the futures fund costs, and the inflation hedging guide covers TIPS ladders and I bonds.
3. Keep those positions small enough to hold for a decade. The table above shows the price for being early: a large protection sleeve costs about 1.5 percentage points a year in normal times.
4. Retirees face the largest risk from the first two years. A 60/40 portfolio lost 35% in real terms in 1973 and 1974, and a retiree drawing income from it locks in losses. See our retirement income guide for withdrawal rules and cash reserves.
5. Do not rely on a single explanation for the next downturn. Weak growth and low inflation would favor long bonds, which is the opposite trade. A diversified mix that holds a bit of each is more useful than a forecast. For a broader menu, see the alternative investments guide and the currency hedging guide.

A fiduciary financial advisor can test a specific portfolio against these episodes. The reasonable question to put to them is what a 1973-74 or 2022 year would have done to your spending plan.

This guide is for informational purposes only and does not constitute investment, tax, or legal advice. Historical returns come from Damodaran's dataset, converted to real terms by us using CPI data; past performance does not predict future results. Fund returns are from issuer pages and SEC filings as of September 2026. Managed futures, commodities, and gold can lose money in any year. Consult a qualified financial advisor before making investment decisions.