People are naturally interested in trying to spot next year’s winner.. this is difficult!
The image below shows that different assets (and subsectors of assets) bounce around the table in a very unpredictable way. The table goes back as far as 2008 so we are starting with the Great Financial Crash so at least we can say we are taking a broad view of the markets.
As you can see, an investor would get a diverse set of returns depending on the Asset they are invested in. The likes of Emerging Market equities, for example, would give any investor a wild rollercoaster ride of returns. However, I’d like to draw your attention to the “AA” asset class. This stands for ‘Asset Allocation’ which represents your typical medium-risk investment fund with a mix of assets managed by the fund manager.
As you can see from the table below, the performance, whilst variable, does offer the investor a smoother journey and, over time, will deliver a return that is more than beast inflation.
This is by no means the full universe of investable assets but we can derive some universal take-aways:
1. Cash is often at the bottom
2. Last years winner can be next years loser (eg REITS 2021 – 2022)
3. A diversified portfolio will give inflation beating returns with balanced risk*
So if we know we need to be invested but we don’t know exactly where to invest then the benefits of intelligent diversification should be obvious. We encourage clients not to get too hung up on trying to use information in news / social media to try and pick a winning sector, or to sit around waiting for a particular asset to fall before deciding the time is finally right! The advice is always the same:
Make sure you have sufficient ‘rainy day’ savings in cash and just get in the market in a diversified manner as soon as possible. The one aspect of investing that you can reliably control is your time invested and it’s absolutely true that the longer you’re in the market, the more chance you have of making positive returns.