Best Mutual Funds in 2014 by Asset Classes
Summary of video: Best Mutual Funds in 2014 by Asset Classes (video) Key points about an ETF from this video: past performance does not predict future performance. asset class performance tends to revert to the mean it pays to diversify This video was released in 2015 but the data in the video is actually through 2013. Fear not, I’ve given you a link, both above and below, so that you can download and print a pdf of the table through 2014. However watch the video. It’s really excellent and the central point is that speculating by asset classes is rather pointless. Transcript of Best Mutual Funds in 2014 by Asset Classes Cast your mind back to chemistry lessons in high school and you’ll probably recall this: the Periodic Table. It contains all the chemical elements—the substances that make up everything in the world around us. Now, think the constituent parts of an investment portfolio—for example: growth stocks, small-cap stocks, emerging-market stocks, or government bonds. These too can be put into a table. In fact they already have been. The Periodic Table Of Investment Returns was devised in 1999 by Jay Kloepfer, Director of Capital Markets and Alternatives Research at Callan Associates in San Francisco, California. The table illustrates annual returns for ten asset classes from 1994 to 2013. The asset classes are color coded to enable easy tracking over time. [Get the Periodic Table of Investment Returns throught the most recent year here: https://www.callan.com/research/perio... or here http://www.bogleheads.org/wiki/Callan...] For each one, Callan uses a well-known industry standard market index. So, for example, it uses the S&P 500 for large-cap stocks and the Barclays Corporate High-yield Bond Index for corporate bonds. Each column illustrates the returns for a particular year and the assets are ranked according to the size of those returns. The asset that performed best in each year is placed at the top, and the one that performed worst at the bottom. So, what can we learn from this seemingly random array of colors? Well there are three key takeaways. First: past performance does not predict future performance. There are no reliable patterns or trends you can take advantage of. Asset classes fall in and out of favor very suddenly, and completely out of the blue. Take emerging markets for example. They fared very well between 2003 and 2007. But in 2008 they fell from top spot to the very bottom. The very next year, 2009, they were back at the top. In 2011, they were once again the worst performer. Then in 2012, the best. In 2013—you’ve guessed it—emerging markets were the worst performing asset class. Secondly, over the long term, asset class performance tends to revert to the mean. Every asset class has a strong run every now and again, and inevitably they all hit a bad spell sooner or later. But over long periods, the average return for each asset class is more or less what you’d expect it to be. Thirdly, and this is the most […]
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