This is particularly true of the inflation-adjusted returns, because inflation tends to be higher during periods of stronger economic growth, according to the Vanguard report, “Recessions and balanced portfolio returns.”
Although it may seem counterintuitive, this similarity in average real returns has occurred because of two typical market patterns: first, the tendency for bonds to outperform stocks during the initial period of economic weakness (a “flight-to-safety” effect), and second, the tendency for stock prices to decline before a recession officially occurs and to rise before it officially ends (a “leading indicator” effect), Vanguard said.
The research found the returns for stocks, bonds, and the 50%/50% portfolio have varied greatly in specific recessions. Balanced portfolios have provided positive returns in a surprising number of recessionary periods, in part because equities often have done better during recessions than conventional wisdom would suggest. In fact, the time-varying and somewhat uneven relative performance of stocks and bonds has been observed in periods of expansion, too.Vanguard said it interprets its results as consistent with the notion that an investment program focused on a diversified, long-term, strategic asset allocation is appropriate regardless of the timing of recessions.