Stagflation? $150 oil? That doesn't mean everyone's 401(k) is losing money.

By Brett Arends

 The problem with crises like this is that stocks and bonds can both fail 

 Smoke rises above Tehran as Israeli and U.S. forces continue "combat operations" while avoiding "war." 

 Situations like this are why you might want energy stocks in your 401(k), right alongside the regular stock and bond funds. 

 Gasoline prices have jumped 30 cents a gallon thanks to this please-don't-call-it-a-war that the U.S. and Israeli governments have launched against Iran. When even the energy minister of Qatar - the oil-rich thumb sticking up into the Persian Gulf - warns that oil prices could double to $150 a gallon, crashing the global economy, you know that the financial and economic risks are enormous. 

 The problem with crises like this is that the twin pillars of the traditional Wall Street "balanced" portfolio, stocks and bonds, can both fail. They did during the inflationary energy crisis of 2022, when Russia attacked Ukraine and oil prices rocketed. And they did during the 1970s, an era of repeated energy crises and endemic "stagflation," meaning economic stagnation combined with inflation. 

 As if on cue, the U.S. government on Friday revealed shockingly weak job numbers that raised the specter of stagflation yet again. The economy seems to be slowing even while inflation remains persistently higher than the Federal Reserve wants. 

 Weekend Reads: Here's how the oil-price surge might be reversed 

 At times like this, your stocks don't always rise to offset your falling bonds, and your bonds don't always rise to offset your falling stocks. Stagnation and inflation are bad for stocks. Inflation is very bad for bonds. 

 During the 1970s the so-called balanced portfolio of 60% U.S. stocks and 40% U.S. Treasury bonds lost about 10% of its value in real, inflation-adjusted terms. In 2022 it lost 22%. 

 The good news is that history says there is a simpler and lower-cost way to protect your retirement portfolio against these crises. When I wrote about it here recently, I didn't realize I'd be returning to the subject so soon. But here we are. 

 The solution? Energy stocks. 

 Investors holding, say, 10% or 20% of their portfolio in energy-producing companies such as Exxon Mobil (XOM), Chevron (CVX), Occidental Petroleum (OXY) and the like have effectively cushioned their savings from these crises. That's been true going back to the 1920s. 

 So far this year, the State Street Energy Select Sector exchange-traded fund XLE is up 26%, while the S&P 500 SPX and the U.S. bond indexes are flat to negative. 

 A portfolio invested 80% in the Vanguard Balanced Index Fund VBAIX and 20% in "XLE" lost less than 1% in 2022, while the balanced index fund alone fell 17% - and more than 20% after factoring in inflation. 

 Energy stocks, according to data tracked by Dartmouth College finance professor Ken French, doubled your money in the 1970s in real, inflation-adjusted dollars, while bonds, and the rest of the stock market, lost value. 

 Where energy prices will go from here is anyone's guess. If even the Qatari energy minister doesn't know, who does? In these circumstances, investors who want an easy life with minimal worry could set an allocation to energy stocks - 10% or even 20% - alongside the traditional stock and bond funds and leave it alone. 

 At the very worst it means that, in times of turmoil like this, you have the option to rebalance your portfolio, skimming some energy profits off the top and using the money to buy traditional stocks and bonds. Those without energy in their portfolio, holding just stocks and bonds, don't have the same flexibility. 

 Read on: Trump professes no concern about gasoline prices despite jump over past week 

 -Brett Arends 

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03-07-26 0920ET

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