Financial FitnessGeneral Information

Asset Class Returns

By March 14, 2019 No Comments

In my 30-year career, one of the things that we continue to convey to clients is diversification.

Why is diversification important?

Normally having money in different asset classes tends to work fairly well to protect portfolios from downturns.  This diversification process is kind of like an eight-cylinder car where all the cylinders don’t go up and down at the same time, but we have different returns for different asset classes.

So typically, when stocks go down the theory is that bonds will go up.  And when stocks go down maybe bonds go up.  And we can further diversify in to large companies, small companies, growth companies, value companies, and even bonds have lots of different asset classes from short-term bonds to long-term bonds and so forth.

Why was 2018 unique?

According to the Deutsche Bank and Bloomberg chart that they recently produced in mid-November of 2018, as you can see here, in the year 2018 it was a record year with negative returns for asset classes.  In other words, 90%+ of asset classes actually posted a negative return in 2018 going all the way back to 1901.  You can certainly see that in 1920 there was over 80% that was negative and the same thing in 1930.  But 2018 was actually a record year and that’s why it was very difficult to have positive portfolios in 2018 as the majority of asset classes, over 90% were negative.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly. 

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.