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Monday, July 2, 2012

Year-To-Date Performance

Source: Capital Pixel
Although markets followed patterns of recent years and were a bit shaky during the 2nd calendar quarter of 2012, they held their gains for the year and rewarded investors who were well-diversified and who stayed with their asset allocations.  This performance builds on the 20-year performance ended 2011 of the diversified portfolio as reported by BlackRock.  The report covers several asset classes as well as a diversified portfolio comprised of 35% fixed income and 65% stocks.  Over the 20-year period ended 2011, the portfolio achieved an average annualized return of 7.7%. At that rate, money doubles in approximately 9 years.  Thus, over the period, a sum of money invested in line with the diversified portfolio would have quadrupled.

The performance of the asset classes comprising the diversified portfolio over the 1st 6 months of 2012 along with component weights and expense ratios are shown in the following table constructed with data from Morningstar :

CLICK TO ENLARGE  The overall portfolio has achieved a return of 6.1% year-to-date. 

A few observations are worth making here.  First off, there has been significant scary news throughout the course of the year that would scare even the bravest investors from the capital markets.  The talk of Europe imploding, the weak U.S. economy, and the fast approaching "fiscal cliff " has been incessant.  Secondly, the alternatives are pathetic.  Treasury bills and money market funds yield marginally above zero and, after taking into account inflation and taxes, are guaranteed to lose ground.  Finally, there is a group of so-called tactical asset allocators who argue that buy-and-hold is dead and that assets need to shifted around in response to valuation metrics. They argue, as well, that they don't really have an appropriate benchmark because they don't have a set allocation but can instead invest in any asset class.

I believe the numbers reported here bury the "buy-and-hold is dead" argument.  I would further argue that the performance here is an excellent benchmark for the tactical asset crowd.  It is a choice investors could easily choose over the tactical approach.  If the tactical approach isn't beating the well-diversified, low-cost diversified portfolio, then I would think at some point questions would arise.


  1. Pretty good performance from a simple portfolio.

  2. It is indeed good return for a moderate risk. I invested in three stocks last month and their brought me 6,5% return already but the risk is ultimately higher!

    On there other hand if you would invest in the inflation protect bonds aka TIPS you could get 3% as well ;-)