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Thursday, March 10, 2011

Callan Periodic Table of Investment Returns - a Resource

Source: Callan Associates
The graphic on the left shows two columns of  "The Callan Periodic Table of Investment Returns."  Click to enlarge and, better yet, use the link to study the whole table. The table shows 20 years of performance for 9 different market sectors. These are:

Domestic Equity: S&P 500, S&P/Citi 500 Value, S&P/Citi 500 Growth, Russell 2000, Russell 2000 Value, Russell 2000 Growth

International: MSCI EAFE, MSCI Emerging Markets

Bonds: Barclay's Capital Aggregate Bond Index

In the table, investment returns for each year are ranked with the best performing sector at the top and the worst performing sector at the bottom. Each sector is color-coded with its return shown in a box. As shown, for example, in the column on the left, the best performing sector in 2010 was "Russell 2000/Growth at + 29.09%. The worst performing sector was "BC AGG," the bond market index, with a return of +6.54%.

It is difficult to over emphasize the usefulness of the table. For example, when DIY Investor is interested in seeing how the bond market performed, on a relative basis, over the past 20 years, he can pull up the chart and, by scanning horizontally, follow the gray boxes. DIY Investor quickly notes that bonds were the top performing sector in 2 years (2002 and 2008) out of the last 20 years. These, of course, were two big down years for stocks, and bonds provided much needed negative correlation.

One of the points shown in the table is the importance of sector diversification. This is reflected in the quilt-like pattern of the colors. Performance by sector jumps around . A second important point is that chasing hot sectors, which many investors apparently cannot refrain from, can be hazardous to your financial health. Frequently,  top-performing sectors fall towards the bottom in subsequent years.

In addition to these usual points, one that is often overlooked should be considered and thought about. That is that the actual returns themselves are useful in thinking about risk tolerance. Focus on the return over the past 20 years of the S&P 500. Notice from 1995 - 1996 that the lowest annual return was 22.96%. Over the next 20 years, we very well could get a similar return. Investors will drive prices sky high, earnings will consistently come in higher than expected, the investment world will convince itself that "the world has changed" and value  metrics no longer matter. The important point is how will you react?  Will you abandon plan and pile in to the "hot sector"?

Notice in the table that the S&P 500 was down more than 20% on two occasions. Again, this very likely will occur going forward. Don't be surprised. Think through strategy and likely responses when seas are calm - that's all DIY Investor is saying. All of this emphasizes, of course, the value of having a well-thought out plan. It goes without saying, as well,  that there likely will be a period during the next 20 years that is unlike anything we've seen before. But this is what makes it fun.

You should also read page 2 of the Callan report and some of the interesting points it makes about the table.


  1. For me, the Callan Periodic Table makes a great case for diversification across asset classes.

  2. re: Grouch That it definitely does.

  3. Wow, I've never seen this table before, and it's fantastic. You're absolutely right about this underscoring the importance of diversification.

    I love that there's an easy visual -- colors, boxes, forming a "quilt" -- that shows people, at-a-glance, why they can't predict the future and why they should diversify.

  4. re: afford-anything Thanks for stopping by.