Asset Class Performance year after year

[audreyh1]

Callan publishes this neat "periodic table" graphic each year that well illustrates the relative performance of various asset classes year after year over the past 20 years. Asset classes are ranked by performance each year top to bottom. The absolute performance is also given. It can be a real eye opener.

The Callan Periodic Table of Investment Returns updated for 2012:
http://www.callan.com/research/download/?file=periodic/free/655.pdf

Someone over at Morningstar always remembers to publish it, which is good, because I always forget, even though it's one of my favorite investment graphics.

 

[rockyj]

This *is* a classic and one of my favorites, too. Helps me to keep the faith when something or other is lagging. Thanks for posting here.

 

[photoguy]

It's neat to look for patterns in the graph, like how often emerging market is at the top or bottom.

 

[kyounge1956]

It's neat to look for patterns in the graph, like how often emerging market is at the top or bottom.

...and how seldom it is anywhere else--only three years out of the last 20, and two of those it was the next to the top or bottom.

 

[Original Wally]

I did a quick calc... if you had invested equally in those buckets, over the years (I found charts back to 1987) the average return was 10.6%. Interesting. Good years +30% a couple of times and +20% half a dozen years. Bad year off 30% once.

Interesting.

 

[mathjak107]

kind of like the permanent portfolio theory which always has something diown yet managed a almost 10% cagr return for almost 40 years.

it had lots of luck for sure as it was never designed as a growth vehicle but it still shows us it is as much about gaining as it is about not losing.

 

[Midpack]

Thanks! I enjoy looking at that format, and had not seen anything current in at least 5 years. Now I know where to look in the future, if I remember.

And seeing returns for all asset classes in 2008 sends shivers down my spine (again). Fortunately I held everything and more than recovered in time, thanks to Saint Jack and Dr B.

 

[pb4uski]

It's neat to look for patterns in the graph, like how often emerging market is at the top or bottom.

High risk/high reward

 

[audreyh1]

It's neat to look for patterns in the graph, like how often emerging market is at the top or bottom.

I think if REITs had been included as one of the asset classes, the pattern would have been similar.

 

[HFWR]

I think if REITs had been included as one of the asset classes, the pattern would have been similar.

The REIT I hold is the only holding that regularly hits my rebalance bands.

 

[Tyro]

I think a similar table for the next 20 years might be more useful.

I wish I [-]knew[/-] could remember enough math to use the chart/data to come up with an optimal AA.

Tyro

 

[rbmrtn]

The periodic table format is a nice way to view the classes. Here is one for 20yrs including cash and real estate, and annualized returns for 10, 20 yrs.

http://ljcooper.squarespace.com/storage/Periodic Table 20 Years Ending 2011.11x17 First Page.pdf

 

[walkinwood]

Makes me appreciate the wisdom of AA & rebalancing. Thanks for posting.

 

[audreyh1]

Makes me appreciate the wisdom of AA & rebalancing. Thanks for posting.

Me too. When I think about people fretting about an asset class that did poorly the year before and not wanting to add to it, or hesitate to trim a bit from an asset class that did great the year before, this chart pops into my head. The rankings change often, year after year. And often a way outperforming asset class in one year, way underperforms the next. But then again, sometimes not. So you never know - as the chart aptly illustrates.

 

[audreyh1]

The periodic table format is a nice way to view the classes. Here is one for 20yrs including cash and real estate, and annualized returns for 10, 20 yrs.

http://ljcooper.squarespace.com/storage/Periodic Table 20 Years Ending 2011.11x17 First Page.pdf

Thanks much for that one. I really did want to see the other asset classes.

 

[samclem]

Audrey, thanks for the post. I always enjoy seeing this and it serves as a good reminder about the value of diversification.

The periodic table format is a nice way to view the classes. Here is one for 20yrs including cash and real estate, and annualized returns for 10, 20 yrs.

http://ljcooper.squarespace.com/storage/Periodic%20Table%2020%20Years%20Ending%202011.11x17%20First%20Page.pdf

Very nice, especially the returns of real estate. I wonder what is included in that block--commercial real estate, houses? Can I get that return with with a "typical" REIT? It seems I recall reading that REITs had limited value as a "diversifier" as their performance had come to closely shadow US equities.

 

[audreyh1]

Audrey, thanks for the post. I always enjoy seeing this and it serves as a good reminder about the value of diversification.


Very nice, especially the returns of real estate. I wonder what is included in that block--commercial real estate, houses? Can I get that return with with a "typical" REIT? It seems I recall reading that REITs had limited value as a "diversifier" as their performance had come to closely shadow US equities.

Purely anecdotal, of course, but I have found that my REIT funds are often totally out of step with my other equity funds. Sometimes it's a matter of degree - way ahead in up markets or way behind in down. But sometimes they are up while the rest are down and vice-versa.

Technically, REITs are mid-cap stocks. But IMO they often don't behave like my other mid-cap stock funds.

 

[Midpack]

Purely anecdotal, of course, but I have found that my REIT funds are often totally out of step with my other equity funds. Sometimes it's a matter of degree - way ahead in up markets or way behind in down. But sometimes they are up while the rest are down and vice-versa.

Technically, REITs are mid-cap stocks. But IMO they often don't behave like my other mid-cap stock funds.

That's the main reason I own a REIT fund, typically low/negative correlation with other equity funds. I assume it's the reason many investors do, Dr B taught me...

 

[RonBoyd]

That's the main reason I own a REIT fund, typically low/negative correlation with other equity funds. I assume it's the reason many investors do, Dr B taught me...

That's the reason we have ~3.5% of our portfolio in VNQ. (And that is one of the higher % holdings.)

 

[pb4uski]

That's the main reason I own a REIT fund, typically low/negative correlation with other equity funds. I assume it's the reason many investors do, Dr B taught me...

What I've never been able to decide is whether I need/should have REITs in addition to the 4% real estate that is included in the stock market as a whole (in the Total Stock Market Index Fund), and if so, how much.

 

[TOOLMAN]

I am still searching for what causes the next sector to out perform. So far the rules I have come to support are; The Dogs of the DOW, & last year winner seldom repeats.

It seems the normal events that move sectors are anticipated in the stock price, so I stopped trying to figure it out, and have arrive at diversified ETF AA with a tilt towards; technology, healthcare, EM.

FWIW Here are 2 correlation calculators.

http://www.sectorspdr.com/correlation/

http://www.market-topology.com/index.php?option=com_impactopia&view=friend&Itemid=2

 

[kyounge1956]

What I've never been able to decide is whether I need/should have REITs in addition to the 4% real estate that is included in the stock market as a whole (in the Total Stock Market Index Fund), and if so, how much.

That's the main reason I own a REIT fund, typically low/negative correlation with other equity funds. I assume it's the reason many investors do, Dr B taught me...

What Midpack says. When I was doing the Asset Allocation tutorial I looked up as much historical and return data as I could find. IIRC, the correlation between REITs and bonds differs slightly from that between equities and bonds, providing some diversification benefit and giving a smoother-riding, less volatile portfolio without much if any decrease in expected return from one with stocks & bonds only. The effect is pretty slight--my target AA is 70% bonds and the rest split evenly between stock and REIT, but I found that in practical terms there was very little difference in expected return and volatility between 5% stock/25% REIT and 25% stock/5% REIT. Last time I checked (which may have been over a year ago) I was approaching that 5% rebalancing trigger. I won't have access to that account info until I get my own computer out of storage and set back up, but I suspect rebalancing will be on my to-do list once that happens. I was also attracted by the fact that REITs generate some income, like dividend paying stocks. Yeah, I know, money is fungible, but I still find the idea of just spending my income and retaining the principal an attractive one. (added later) I may at some time want to move into a retirement community and at that point I would consider spending some of the principal for buy-in if sale of my house didn't generate enough money.

So to answer your question, if you want a slightly less volatile portfolio, add a dash of REIT fund. If you want the simplest portfolio, leave it out. I think you can get nearly the same effect by tweaking your stock/bond rebalancing point.

 

[photoguy]

What I've never been able to decide is whether I need/should have REITs in addition to the 4% real estate that is included in the stock market as a whole (in the Total Stock Market Index Fund), and if so, how much.

Take a look at Merriman's ultimate buy and hold article. He compares several different portfolios and you can see the impact on return/variance.

http://www.merriman.com/PDFs/UltimateBuyAndHold.pdf

When you look at the numbers, they will be small in absolute scale. You have to decide for yourself if it's worth the extra complexity (and the chance that something goes wrong). But also keep in mind that +0.3% annualized return is huge compared to a 4% or lower SWR.