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Sunday, January 3, 2016

Estimated 2015 Performance of BlackRock Diversified Portfolio

Regular readers know my favorite investment chart is the BlackRock 20-year sector performance.  It details the relative performance ranking of asset classes on an annual basis as well as the performance of an easily replicated low-cost diversified portfolio comprised basically of 65% stocks, 35% bonds.  As can be seen by referencing the above link, the diversified portfolio returned 8.7% on an average annualized basis over the 20-years ended 12/31/2014.

The diversified portfolio allocation is an appropriate benchmark for many individuals in their 40s and even early 50s, depending on their specific risk tolerance.  The chart contains sufficient data, however, to construct a benchmark and analyze performance for any specific allocation; and, in fact, the allocation can be changed over time using the data in the table--as it should be as an individual ages.

Voluminous data from unbiased academic studies have been presented over the years showing that a diversified portfolio of low-cost funds outperforms upwards of 70% of active managers over the longer term, after all costs are taken into account.  These studies cover various time periods, countries, asset classes, and investment methodologies.  In line with this data, the low-cost diversified approach warrants consideration as a benchmark for investors.  It shouldn't go unnoticed that the approach economizes on the investor's time.

Below is an update showing the estimated performance of the diversified portfolio's sectors for the 12 months ended 12/31/2015.  Overall, the portfolio returned approximately -.03%. This was a year pundits labeled "violently flat."  Although there were big up and down moves, well-diversified portfolios tended to be unchanged.

For the 12-month period, sector performance was mixed with small growth stocks doing best, followed by the investment grade bond market which eked out a small gain.  Small cap value stocks did especially poorly.  Commodities, including oil, had an especially horrendous year and were responsible for weighing down the broad averages.

Weight (%)
Return (%) 12 months ended 12/31/2015
AGG (Barclay’s Aggregate Bond Index)
EFA (EAFE Index)
IWM (Russell 2000)
IWF (Russell 1000 Growth)
IWD (Russell 1000 Value)

Disclosure:  This post is intended for educational purposes only.  Past performance is not indicative of future performance.  Individuals should consult a professional or do their own research before making investment decisions.

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