Article Highlights:
- I ran across an important chart on the website of the Center for Research in Security Prices.
- It ranks the performance of various asset classes over the past 15 years.
- The research shows that owning one particular asset has been smart.
We have often heard the refrain: “Past performance is not an indicator of future performance.”
It’s been jammed into our heads enough times that many of us believe it.
It’s still on some investing-related ads today.
I saw that disclaimer again when I ran across this chart on the website of the Center for Research in Security Prices (CRSP). It’s at the end of the fine print below the chart:
(Click here to view a larger image.)
While this chart may not indicate what will happen in the future, there are important takeaways to learn from it.
Read on to learn what they are…
Takeaways
It may not surprise you to learn that U.S. stocks were the first- or second-best asset class during 11 of the past 15 years.
If you invested $10,000 in U.S. stocks at the start of 2009, you would’ve had more than $34,000 at the end of last year.
That’s better than any other asset class.
Another Way to Think About It
I wanted to look at the above returns another way, so I ranked them from best performance to worst:
International stocks had the most single-year wins. They’re volatile, though. They also scored worst in four of the 15 years.
International stocks are great stocks to own … at the right time.
Interestingly, three of the four times after international stocks had the worst performance, they did the best the following year. They had the worst performance last year.
Diversification
You may have heard about a balanced portfolio.
According to CRSP, a balanced portfolio is comprised of:
- 55% U.S. stocks.
- 35% 10-year bonds.
- 10% 90-day Treasury bills.
This asset allocation makes sense when stocks are overvalued.
For example, U.S. stocks did the worst in 2008. Stocks had gotten too expensive as the economy struggled.
If you recognized this and invested in a balanced portfolio at the start of that year, you would have only lost about 13%. In comparison, U.S. stocks fell nearly 37% in 2008, or almost three times as much.
What Does This Mean?
Some of you are worried.
I know from reading your feedback.
One thing is clear from the above data, though: Owning stocks, whether they’re U.S. or international ones, has been smart.
Maybe past performance won’t tell us exactly what will happen in the future. But it does show us that owning stocks is the right thing to do.
Stocks have had a solid run-up since the beginning of June, though. It wouldn’t be a surprise if they take a breather.
And you must be able to sleep at night.
If you’ve generated solid gains over the past 15 years and are really worried about what to do next, consider a more balanced breakdown for some of your assets.
It doesn’t have to be the exact one presented by CRSP. But removing some of the equity exposure may help fix what worries you.
One example is the iShares Core Growth Allocation ETF (NYSE: AOR).
AOR holds about 60% equity and 40% fixed income. Its equity holdings are 60% U.S. and 40% other developed countries. Its top foreign holdings are Japan, the U.K., France, Canada and China.
The fund won’t zoom as high as the S&P 500 Index has in recent years. But if stocks fall, it won’t fall as much.
Always remember you have options.
Good investing,
Brian Christopher
Editor, Insider Profit Trader