U.S. equity performance has been strong since the financial crises, outpacing most other asset classes. That trend has continued this year, with the S&P 500 Index up over 10% while U.S. fixed income and international equity indices have posted negative returns year to date. As a result, a diversified, balanced portfolio of stock and bonds has trailed the bellwether S&P index in 2018. With such a large performance gap and equity volatility fairly benign, some investors may be questioning whether diversification is still worthwhile. If blue chips can perform this well, why invest in anything else?
The answer is apparent in the 10-year period from 2000 – 2009, the “Lost Decade” for U.S. equities. Over that span, the S&P 500 posted a cumulative loss of over 9%, as large-cap U.S. stocks were among the worst performing asset classes. Other asset classes – including fixed income, small-cap U.S. stocks, and international equities – delivered stronger results. A broadly diversified portfolio of 50% bonds and 50% equities generated cumulative returns of 52% over that same 10-year period, easily besting the blue chips.
While U.S. equities have dominated other asset classes in recent years, it’s important to not let those recent results bias one’s portfolio decisions. Over time, asset class dominance changes, and this time is not different. A diversified portfolio of global stocks and bonds will tend to lag equities during strong U.S. equity markets, but prove their value when other parts of the market have their proverbial day in the sun.
Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.
Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.