Atomic Rome is what our grandmother called the United States. 2 of 5

A recent blog painted the picture that was the economic decline of the Roman Empire.  The eye-opening chronology reminds us of the decay that can accompany Imperial Decline.  Lowered standard of living is our vote for the inescapable result of uninterrupted economic weakness.

The idea to compare The Roman Empire to the United States is credited to our grandmother.  As early as 1960, she began calling the United States “Atomic Rome.”  Decades later, her clever observation grows in importance.

In this second part of a five part series, fixed income and growth strategies are tested amidst economic decline.

After reading of the decline of Rome, it would not be unexpected for an investor to instruct his or her investment advisor to act with the utmost caution until further notice in the “Atomic Rome” economy; duck and cover as it were.  Naturally, bond investments would be at the top of the cautionary wish list.

The picture is worth the proverbial thousand words.

Ah, the tranquility of that purple-colored line’s trajectory from 2005 through 2010!  Bond investments (depicted as the purple “buy yield” line) anchored an investment portfolio that thrashed most other investment indexes about over the past five years.  For an investor who must avoid any or all volatility for any reason, bonds and other fixed income investments are integral portfolio ingredients. 

At the same time we believe in the likelihood that bond investors may have less principal in five or six years hence as inflation whittles away the bond’s principal.  If an investor is interested in shooting for any capital gains in their portfolio, other investments must be considered.

Adding growth investments to the mix leaves us with the “forward valuation” thick lime green-colored line below.  Although the growth investor suffers to the tune of being down ~22% in 2008-09 vis-à-vis the “buy yield” portfolio, the growth portfolio outperforms over a longer timeframe.

During the test period, the forward valuation outperforms most indexes save emerging markets.  Recall we inserted the best performing index – emerging markets index – with the benefit of 20/20 hindsight vision.  The purpose was to compare our trial balloons against the best investment available.

Our next blog will examine some less conventional portfolio strategies for “Atomic Rome” investors.

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