This graph illustrates the importance of diversifying across asset classes. The patchwork table shows from top to bottom the highest returning asset classes each year. The second table shows which asset class each colour represents.
There is no real pattern in the best performing asset classes from year to year. For instance, in 1999, Australian Small companies were the best performer and one year later they were the worst.
Even within one broad asset class such as Australian shares, the sub asset classes – value, large and small – behave differently from year to year as can be seen from the bottom table.
What’s more, it is not just about picking the best asset class from year to year, but about timing your moves in and out of the best performers. These are extremely difficult decisions to get right.
The only way to ensure that we are exposed to the highest performing asset classes each year is to incorporate all asset classes into a portfolio.
Data is the annual return to 30 June. Data used for each asset class is as follows: Australian Large: S&P/ASX100 Index, Australian Value: S&P Australia BMI Value Index (gross div.), Australian Small: S&P/ASX Small Ordinaries Index, Global Large: MSCI World Index, Global Value: Dimensional Global Large Value Index, Global Small: MSCI World Small Cap Index (price only), Emerging Markets: MSCI Emerging Markets Index (gross div.), Property: S&P/ASX 300 Property Trust Accumulation Index, Cash: UBS Bank Bill Index, Fixed Interest: UBS Composite Bond Index All Maturities. S&P/ASX data reproduced with the permission of S&P Index Services Australia. MSCI data copyright MSCI 2011, all rights reserved.
UBS data reproduced with the permission of UBS Warburg Australia Ltd.
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