Planning matters

Winners & Losers: A Look into the Recent Past

Below is a look at 10-year annual returns of major asset classes in 2008, 2013, and 2016. What’s notable is how an asset class deemed “today’s favorite” becomes a “dawg” a handful of years later. For example, in 2013 emerging market stocks led the pack with a 10.5% annualized return only to severely underperform thereafter, thus dropping to near the bottom of the pack with a 1.2% return in 2016. U.S. large-cap stocks, laggards in 2008 with a negative 1.5% return, have had a stellar run with a climactic finish in 2016 (after the Trump presidential win) placing them near the top of the charts with a 6.9% return.

The message being, a smart asset allocation decision often involves owning out of favor asset classes as opposed to only today’s winners, so portfolios can better diversify the sources of return. This is the essence of diversification.

My guess is today’s favorites will likely become tomorrow’s laggards, while assets “on the bench”, such as emerging markets and broad commodities, may flip the charts and be leaders of the pack.


Data: ishares.com, spdrs.com, ipathetn.com, us.spindices.com, vanguard.com, Morningstar / Funds & Indexes: VBMFX, VTMGX, SPY, EEM, NAESX, S&P U.S. Treasury Bill Index, MSCI EAFE, Reuters/Jefferies CRB Index, MSCI Emerging Markets

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