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Tuesday, January 1, 2013

2012 Performance

 Happy New Year!!!!!!!!!!

As readers of this blog know, one of my favorite tools for explaining investments is the BlackRock Asset Class Returns 20-Year Snapshot table.  It shows and ranks annual returns on various asset classes along with a 65% equity/35% fixed allocation diversified portfolio.  The table shows the value of diversification, the payoff to sticking with an asset allocation through market cycles, the role of bonds in the portfolio, and probably other things I haven't thought of.

I believe it is worth spending some time with it and thinking through the implications for the do-it-yourself investor and even those seeking an investment manager.  For these reasons, I like to update it each quarter.

The diversified portfolio is also a good benchmark for a lot of investors.  With 35% in the Barclay's Aggregate Bond Index, it is fairly conservative and would be appropriate for many investors in their mid-30s to mid-40s with a reasonable tolerance for the ups and downs of the market.  Also notable is the fact that the diversified portfolio can easily be replicated with low-cost, well-diversified exchange traded funds.  The low cost isn't just in the expense ratios (shown in the table below) but also in the amount of time required to learn how to manage and then actually manage this type of portfolio.

Approximate 2012 Performance of Diversified Portfolio

The table shows returns on the various components of the diversified portfolio. These returns were obtained from Morningstar and based on net asset values.  Overall, the portfolio achieved a return of approximately 10.8% for 2012.

To have achieved close to this return merely required holding the funds or similar funds in the appropriate weighting.  For those of you using Fidelity in your 401(k), you would have achieved similar results with their corresponding Spartan funds.  Vanguard and Schwab, of course, offer funds similar to those shown in the table at low cost. 

The bottom line is that managing your assets isn't really rocket science!  If history is any guide, you'll find that most active managers who try to time the market or pick stocks using fundamental or technical analysis underperformed these results.

Disclosure:  This post is for educational purposes only.  Past performance is not indicative of future performance.  Individuals should do their own research or consult a professional before making investment decisions.  I own, and my clients own, some of the funds mentioned.


  1. Congratulations on your returns in 2012. I think that IWF is great fund. Have a great 2013.

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