The Callan Periodic Table of Investment Returns (shown below) shows the value of taking a diversified approach to investing. Rarely does one asset class continually outperform the rest. In many cases, the best performing asset class in one year has gone on to be the worst performing asset class the next. That is a roller coaster ride for investors chasing returns, not to mention the impact return chasing would have on one’s overall investment performance.
The yellow blocks show the returns of a balanced portfolio of 60% stock and 40% bonds. We would consider this a moderate allocation. It is an allocation many of our clients have in their portfolios. Not only has this balanced approach led to good long-term performance, but it has also been a much smoother ride along the way.
So much of what makes investing hard is the emotional roller coaster of seeing your hard-earned dollars go up and down in value. By taking a well-diversified, balanced approach, one can limit the volatility they experience in their portfolio. We encourage all of our clients to work with their advisor on an allocation that they are comfortable with through the ups and downs of the market. It is crucial to stay invested even during downturns.