The Veater Financial Table of Investment Returns ranks the annual performance of key asset classes over each of the last 20 years. The best asset class for a given year is listed at the top, with the lowest returning asset class listed at the bottom. As we look back on 2015, here are a few key takeaways:
- 2015 was a challenging year. The best asset class for the year (the S&P 500) returned +1.3%. The lowest performing asset class (MSCI Emerging Markets) returned -16.17%.
- The U.S. stock market (the S&P 500 and the Russell 2000) outpaced both international markets (MSCI EAFE) and emerging markets (MSCI Emerging Markets) for the third year in a row. The last time we saw similar relative performance was in the mid to late 1990s.
- The S&P 500 (a proxy for large US business returns) and the Russell 2000 (a proxy for small US business returns) performed very similar to 2011. Both the S&P 500 and the Russell 2000 experienced stock market corrections in 2011 near the end of the year, similar to what we experienced this year.
One of the key conclusions that we draw when looking at how the stock and bond markets perform over time is the importance of diversifying one’s investment assets. No asset class stays at the top. There is a constant rotation in what is performing well during any given year. And we believe that the most prudent and likely way to generate desirable risk-adjusted returns is to maintain diversification across asset classes. Note that the chocolate box you see on this chart represents a “Moderate Growth” style of investing. It diversifies across the various asset classes listed and historically can create a more consistent return.
Stock investing involves risk including loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
No strategy, including asset allocation, assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Strategies and investments mentioned may not be suitable for all investors.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.