As I have said many times here, one of the most useful research/data pieces I know of on market and sector performance is the "Asset Class Returns: A 20-Year Snapshot" table produced by BlackRock and discussed at Cedar Financial Advisors. It shows annual asset class returns, color-coded, ranked so that investors can easily see the best-performing and worst-performing sectors for each year over the 20-year period. What sets it apart from similar charts is that it shows the returns of a diversified portfolio on an annual basis. Among other important points, it clearly shows how volatility is dampened with diversification and the hedging properties of bonds.
On the volatility point, note that the diversified portfolio return was never in the top two asset categories for any given year but, by the same token, was never at the bottom of the list. Worth studying and thinking about, I think. On the hedging property, pay particular attention to how bonds performed in the years when stocks had negative returns. The best example, of course, is 2008. It is really important to understand that we are talking about bonds - not certificates of deposit or savings accounts or anything of that sort. The key is that bond prices rise when yields drop and vice versa. Thinking through the bond portion of one's portfolio is one of the most important parts of asset management.
Anyway, these points have been made in greater detail in previous posts - let's look at how the diversified portfolio started the year.
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| Source: Morningstar |
Overall, a really good quarter for retirees who are drawing down their nest egg. In fact, it opens up possibilities. A performance above what was expected can be used to use a portion of the exceptional gain to lock in income by buying an immediate-pay single premium annuity. Or a slight increase can be taken in the draw down rate. The point is that it opens up some possibilities for those retirees who are flexible.
For the accumulators, i.e. those building their nest eggs, the news isn't so good. I know - it feels good to see the portfolio go up; but the important thing is not where it is today but where it is when it comes time to draw it down. Stocks are more expensive today than they were at the beginning of the quarter but, on the brighter side, bond yields are a bit higher.
Disclosure: The data shown in the table and discussed was obtained from reliable sources but cannot be guaranteed as to accuracy. I and some of my clients own securities mentioned in the post. The information is solely for educational purposes. I ndividuals should do their own research or consult with a professional advisor before making investment decisions.
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