For any retirement period duration from ten to fourty-four years commencing that year, 1966 produced the dubious distinction of the worst possible retirement year in recorded market history (going back to 1926).

 

Worse even than any year prior to, or during, the great depression.

 

The combination of brutally high inflation throughout the entire decade of the 1970's and early 1980's and an abysmal bear market during 1973 and 1974 (with a subsequent excruciatingly slow recovery) produced the ultimate portfolio stress test.

 

Two takeaways, one fairly obvious, and one more subtle:

 

1)  If you want a historical "worst case" scenario to stress test a portfolio, start with 1966.  Sure, the future could hold something worse, but if your portfolio can sustain you to a ripe old age under the worst that history has served up (so far anyway), you're probably in a pretty good place.

 

2)  Think back to the environment on the eve of 1966.  The country had begun to heal from losing President Kennedy to an assassin's bullet.  The Cuban Missile Crisis had been averted and the backyard bomb shelter building craze had come to an end. 

 

The United States' ground participation in the Vietnam war had begun only nine months earlier and had not yet turned into the quagmire it would eventually become (public opinion hit its high point in support of the war in March of 1966).

 

The stock market was coming off of three consecutive double-digit gain years.

 

Inflation had run under 2% for the prior eight years.  Interest rates had been at historical lows for nearly a decade.