This is an excellent and compelling video that reinforces many of the ten rules of common sense investing. This annual graphic shows brilliantly how top performing asset classes change from year to year. The aim is to show how a short time horizon can lead to speculating rather than investing. It’s compelling for anyone learning how to invest.
This is presented and produced by Independence Advisors, LLC and was published on their YouTube channel on Jan 20, 2015 and titled: The Periodic Table of Investment Returns. I have included a summary and transcript to help you find the spots that interest you and make the best use of your time.
You can get a printable copy of the most recent Callan Periodic Table of Investment Returns which depicts annual returns for 10 asset classes, ranked from best to worst performance for each calendar year: 1999 to 2018.
Absolute performance of key indices is most apparent when ranked relative to zero, or relative to inflation, 2009 to 2018.
Summary of video: Best Mutual Funds by Asset Classes (video)
Key points about best asset classes from this video:
- past performance does not predict future performance.
- asset class performance tends to revert to the mean
- it pays to diversify
This video was released in 2015 but the data in the video is actually through 2013. Fear not, I’ve given you a link, both above and below, so that you can download and print a pdf of the table through 2019. However watch the video. It’s really excellent and the central point is that speculating by asset classes is rather pointless.
Transcript of Best Mutual Funds by Asset Classes
Cast your mind back to chemistry lessons in high school and you’ll probably recall this: the Periodic Table. It contains all the chemical elements—the substances that make up everything in the world around us. Now, think the constituent parts of an investment portfolio—for example: growth stocks, small-cap stocks, emerging-market stocks, or government bonds. These too can be put into a table. In fact they already have been.
The Periodic Table Of Investment Returns was devised in 1999 by Jay Kloepfer, Director of Capital Markets and Alternatives Research at Callan Associates in San Francisco, California. The table illustrates annual returns for ten asset classes from 1994 to 2013. The asset classes are color coded to enable easy tracking over time.
[Get the Periodic Table of Investment Returns through the most recent year here: https://www.callan.com/wp-content/uploads/2019/01/Classic-Periodic-Table-2019.pdf ]
For each one, Callan uses a well-known industry standard market index. So, for example, it uses the S&P 500 for large-cap stocks and the Barclays Corporate High-yield Bond Index for corporate bonds. Each column illustrates the returns for a particular year and the assets are ranked according to the size of those returns. The asset that performed best in each year is placed at the top, and the one that performed worst at the bottom.
So, what can we learn from this seemingly random array of colors? Well there are three key takeaways.
First: past performance does not predict future performance. There are no reliable patterns or trends you can take advantage of. Asset classes fall in and out of favor very suddenly, and completely out of the blue. Take emerging markets for example. They fared very well between 2003 and 2007. But in 2008 they fell from top spot to the very bottom. The very next year, 2009, they were back at the top. In 2011, they were once again the worst performer. Then in 2012, the best. In 2013—you’ve guessed it—emerging markets were the worst performing asset class.
Secondly, over the long term, asset class performance tends to revert to the mean. Every asset class has a strong run every now and again, and inevitably they all hit a bad spell sooner or later. But over long periods, the average return for each asset class is more or less what you’d expect it to be.
Thirdly, and this is the most important lesson of all, it pays to diversify. If you own the whole market, ideally every asset class, you minimize your susceptibility to sharp swings in market sentiment.
In any one year the difference in returns can be huge. In 2013, for instance, growth stocks yielded a total return of more than 43 percent, while emerging markets lost more than 2 percent. But that’s all part of the ebb and flow of asset class investing.
Encouragingly, in 8 out of twenty years—in other words, forty percent of the time—every asset class has produced a positive return. But in no year has every asset class produced a negative return.
So to summarize, don’t look for trends. Don’t get carried away if a particular asset class has been on a long run of success. And similarly, don’t discard a particular asset class because everyone else is giving up on it—that’s usually just when performance starts to improve. Most of all, do diversify. And do rebalance your portfolio when appropriate.
Yes, the rules to successful investing really are that elementary.
Footnotes and Credits:
This video was produced by the wealth management company Independence Advisors, LLC and they own the copyright. I’m so happy that they made this high quality explanation and made it available for me to include via YouTube on this educational website.