Yearly Asset Class Returns
Key take aways
- Diversification is a great way to reduce the volatility of your portfolio.
- It is hard to predict which asset class will be the winner from year to year.
How do you read the chart?
The chart presents the annual returns for 9 major investment asset classes from 2008 to 2022. A tenth box is added to represent a sample “Asset Allocation” portfolio as discussed below. Each asset class and portfolio is assigned a color. Here is a guide to the labels and what they mean:
Equity or Stocks
Large Cap is the return of the largest 500 companies by market size in the United States.
Small Cap is the return of the smallest 2,000 companies by market size of the largest 3,000 companies in the United States
DM Equity is the return of Developed Market stocks. Developed Markets in this context captures the return of 21 countries excluding the US and Canada.
EM Equity is the return of Emerging Market stocks. Emerging Markets are countries not included in the Developed Markets index.
Fixed Income or Bonds
Fixed Income tracks the return of the aggregate bond but excludes international bonds, municipals, and high-yield bonds.
High-Yield represents global bonds which are riskier in nature.
Cash is the 1-3 month US Treasury return. This is typically higher than cash stored in your bank.
Alternatives
REITs represent publicly traded Real Estate Investment Trusts mostly focused on commercial real estate properties.
Com dty stands for commodities. It includes a weighting different commodities like Energy, Grains, Industrial Materials, Precious Metals, Livestock, and a few others.
The Asset Allocation Portfolio is 55% equity, 35% Fixed Income, and 10% Alternatives.
On the far right of the table, there are two more columns that summarize the annual information. The first column, “Ann”, represents the total compound return over the time period for that asset class. The second column, “Vol”, represents the annualized volatility of that asset class.
What the chart does not say
- The chart does not make any sort of guarantee about the performance of the asset classes in the future.
- The chart only goes back to 2008 and does not represent the assets longer-term metrics. If we rewound the clock to a different time period, the boxes would change. For example, large Cap stocks had an outstanding performance from 2010 to 2021. REIT’s also performed fairly well during this time period. For REIT’s in particular, if you add the year 2007 to the mix, the annualized return drops but ~1.5% per year. International Stocks underperformed US stocks by a wide margin in this time period.
- These returns are not inflation adjusted.
Official Source Information: Bloomberg, FactSet, MSCI, NAREIT, Russell, Standard & Poor’s, J.P. Morgan Asset Management. Large cap: S&P 500, Small cap: Russell 2000, EM Equity: MSCI EME, DM Equity: MSCI EAFE, Comdty: Bloomberg Commodity Index, High Yield: Bloomberg Global HY Index, Fixed Income: Bloomberg US Aggregate, REITs: NAREIT Equity REIT Index, Cash: Bloomberg 1-3m Treasury. The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Bloomberg US Aggregate, 5% in the Bloomberg 1-3m Treasury, 5% in the Bloomberg Global High Yield Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. Annualized (Ann.) return and volatility (Vol.) represents period from 12/31/2008 to 12/31/2021. Please see disclosure page at end for index definitions. All data represents total return for stated period. The “Asset Allocation” portfolio is for illustrative purposes only. Past performance is not indicative of future returns. Guide to the Markets – U.S. Data are as of December 31, 2022.