Average returns for funds with an equal mix of stock and bond allocations have historically been “statistically equivalent” during recessions and expansions, according to Vanguard. Vanguard studied balanced funds’ historical performance from 1926 through June 2009.
The reason for this, according to Vanguard’s research, is that during a recession, bonds typically outperform stocks as investors search for safety. Furthermore, stock prices tend to fall in the period before a recession is declared and rise again as the economy begins to recover.
Consequently, the average returns for balanced funds between 1926 and 2009 have been “similar regardless of whether the U.S. economy was in or out of recession.”
This is particularly true of inflation-adjusted returns, the paper notes, because inflation tends to be higher during expansions.
Vanguard acknowledges that while the average balanced portfolio returns have been similar, specific recessions have resulted in a wide variance between returns for stocks and bonds.