It represents a time period that represents both good and bad years, which is fairly typical for how things tend to play out for investments. Sometimes we do experience longer stretches of up or down markets, but this is a good example that has a mixture of returns. This data specifically uses index returns as a measure of how various asset classes performed.
Each colored square represents the annual performance of an asset class over a 10 year period, and includes the Great Financial Crisis of 2008. Asset classes are ranked each year from best performing to worst performing. The purple highlighted boxes represent a portfolio comprised of 60% stocks and 40% bonds.
The first observation is that this portfolio is never the best performer but also never the worst. It consistently ranks in the mid to top end of the pack, year in, year out.
In 2008, bonds were the best performing asset class, returning 5%, while stocks were down significantly across the board. As you can see, a diversified portfolio helped mitigate the negative stock market returns in 2008.
In 2009, stocks reversed course and rallied significantly, while bonds trailed and were the worst performing asset class. In this instance, the portfolio comprised 60% stocks and 40% bonds participated in the upside of stocks and outperformed bonds.
The reality is the performance of each individual asset class can differ significantly from one period to the next. But a well-designed portfolio, allocated across asset classes can produce much more consistent results.
Indeed, over the 10 year period illustrated, the same portfolio comprised 60% stocks and 40% bonds produced about ¾ of the return of the S&P 500 but with about 60% of the risk.
We also highlight the 10 year performance of other portfolios – ranging from 20% stock exposure to 80% stock exposure. You can see they consistently rank in the mid to top end of the pack.
This underscores the important role asset allocation plays in portfolio construction.
Finding the right mix, or asset allocation, is a critical step in ensuring your portfolio performs in align with your risk tolerance and produces more consistency in returns on the way to achieving your long-term financial goals.
Commodities are volatile investments and should form only a small part of a diversified portfolio. The use of derivative instruments may add additional risk. An investment in commodities may not be suitable for all investors.
Diversification helps you spread risk throughout your portfolio, so investments that do poorly may be balanced by others that do relatively better. Neither diversification nor rebalancing can ensure a profit or protect against a loss.
Real estate may not be appropriate for all investors. Its value may fluctuate based on economic, regulatory, and environmental factors. Redemption may be at a price, which is more or less than the original price paid.
Do not act upon this information solely, and seek professional guidance before making investment decisions. This presentation is not intended to provide any specific investment advice. No investment strategy can ensure a profit.
Fixed income securities carry interest rate risk, inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Interest income generated by municipal bonds is generally expected to be free from federal income taxes and, if the bonds are held by an investor resident in the state of issuance, state and local income taxes. Such interest income may be subject to federal and/or state alternative minimum taxes. Investing in municipal bonds for the purpose of generating tax-exempt income may not be appropriate for investors in all tax brackets. Short- and long-term capital gains and gains characterized as market discount recognized when bonds are sold or mature are generally taxable at both the state and federal level. Short- and long-term losses recognized when bonds are sold or mature may generally offset capital gains and/or ordinary income at both the state and federal level.
Mission Wealth is a Registered Investment Adviser. This document is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Mission Wealth and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Mission Wealth unless a client service agreement is in place. California Insurance License # 0D35068.
00368735 06/20antial gain or loss. Interest income generated by municipal bonds is generally expected to be free from federal income taxes and, if the bonds are held by an investor resident in the state of issuance, state and local income taxes. Such interest income may be subject to federal and/or state alternative minimum taxes. Investing in municipal bonds for the purpose of generating tax-exempt income may not be appropriate for investors in all tax brackets. Short- and long-term capital gains and gains characterized as market discount recognized when bonds are sold or mature are generally taxable at both the state and federal level. Short- and long-term losses recognized when bonds are sold or mature may generally offset capital gains and/or ordinary income at both the state and federal level.