Transcript: In todays Quick Hit Video, we’re going talk about asset class investing and why we believe it’s hard to predict who the winners and the losers are going to be. This video is sort of a follow up to the last blog post I made about value stocks.
If you walked around our offices, you would see some computers, some phones, some nice artwork, a welcoming lobby, and a big conference room. What you won’t see is a crystal ball. We don’t have one. Here’s why.
Take a look at this chart. I know, there’s a lot going on here so I’m going to leave it up for a few minutes. We call it the skittles chart for obvious reasons. If you poured a bag of skittles on a table, it may end up looking similar to this chart with a bunch of different colors in a random pattern. In this case, each color represents an asset class. You can see that each column has a year on top so here we are looking back from the beginning of 2006 to the end of 2020. The top row represents the asset classes that returned the best performance for each particular year. The bottom row shows which asset class had the worst performance for each year.
I want to point out a few interesting things here that may not be so obvious at first. Take a look at 2008. Emerging markets had the worst return with almost negative 54%. I’m sure many investors bailed on emerging markets and other equities which is why bonds had the best perfomance that year. Then 2009 comes along. Bam! Emerging markets had an incredible 82.4% return and look what asset class came in dead last. Look at 2015. Small value had the 3rd worst return at -7.5% but then had the best return in 2016 at 31.7%
So what’s the point of all this? The purpose of this chart is to illustrate that there is no pattern. You just never know what asset class will be the next winner or the next loser. There is no crystal ball. We build portfolios using all of these asset classes and the amount of risk you are willing to take is the determining factor for what percentage of your portfolio we put in each asset class. Charts like these are why we remind our clients that their portolfios were built specifically for their goals. Market fluctuations and corrections are simply part of investing and should be expected. They are not a time to panic.
Ok, so to wrap this up, If your advisor has put together a good portfolio that’s meant to meet your goals then the best thing you can do is leave it alone and turn off the financial news. However, if you continue to watch it, don’t let it cause you to make untimely financial decisions based on emotions and fear. Remember, news is about making sure you are afraid of what’s happening now and what’s coming next. We don’t know what’s next and neither do they…but they can’t wait for it to happen.
Alright, that’s it for this one. I would love to hear some feedback from you on investment topics you would like me to make a blog post about. Just send an email to firstname.lastname@example.org with your topic and we’ll cover it.