Investment Help

If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.

Friday, February 5, 2016

My Favorite Investment Chart


BlackRock Asset Class Returns - A 20-Year Snapshot

chart has just been released for the period through 2015. This is a 2 page chart many advisors would not want you to see. It illustrates that investing in low cost Funds over an extended period, using a buy and hold strategy has produced excellent returns with relatively low volatility.

Understanding what this chart shows can make a huge difference for those trying to build a nest egg for retirement. Understanding this chart reveals how many investors could have invested their 401(k)s as well as their other monies to achieve better performance. It is useful for comparing their performance as well as their advisor's performance.

The first page shows year by year the returns of 7 different asset classes with each color coded so that it is easy to see for any given year the top performing sectors as well as the lower performing sectors. They also show a diversified portfolio as the white box.  The diversified portfolio is comprised of all the sectors. The actual composition of the diversified portfolio is provided in the last footnote on the first page of the charts.

The first thing that jumps out is that the diversified portfolio is never among the top 2 performers but also is never in the bottom 2. This is a visual depiction of the fact that diversifying reduces volatility.

A second point is that chasing the hottest sectors can be hazardous to your investment health. Notice that in 1998 and 1999 the top performing sector was Large Cap Growth. For the ensuing 3 years this sector was at or near the bottom.

A third point to note is that the Fixed Income sector (i.e. bonds) produced a negative return in only 2 out of the 20 years. This is worth some consideration because investors tend to be leery of bond Funds because bond prices go up and down and managers therefore may sell at losses and buy at higher prices. The overall market though, as shown, is much better behaved in terms of loss aversion. The index shown is for the entire U.S. investment grade bond market and holds bonds until they reach 1 year left to maturity.

The second page of the chart shows line graphs of the sectors as well as the cumulative and average annualized returns and standard deviations. Keep in mind, as you look at this chart, all the events that occurred that kept nervous investors out of the market including terrorist attacks, the "Great Recession", Greece threatening the viability of the European Union with its debt issues, and even shutting down the government. Despite these the patient investing of $100,000 at the beginning of the period ended up at $417,329! The average annualized return was 7.4% and the standard deviation as shown in the table was a relatively low 10%.

It goes without saying that many financial advisors who charge big fees would love to have results close to these to report to their clients.

It is a sad commentary however that many investors have no idea what they could achieve. Over the period shown many investors would feel their advisor (or they themselves for that matter) had done a good job if they had turned $100,000 into $315,000 say.

Some may question at this point what happened to the extra $100,000. For an answer read "Where Are the Customers' Yachts ?" by Fred Schwed.

Disclosure: this post is for educational purposes. Investors should do their own research or consult with professionals before making investment decisions.

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