I do not own Malkiel's new book, but his advice is well worth heading, and makes a lot of sense to me. For investors who were diversified, this was not a lost decade, but a decade of moderate positive compounding. In addition to the average bond market compounded returns over the decade of 5 - 7% per year, the diversified investor could have reaped the following total returns:
| Domestic | Return | International | Return |
| Large Cap | -9.1% | Large Cap | 12.4% |
| Large Cap Value | 27.6% | Large Cap Value | 41.4% |
| Small-Cap | 41.2% | Small-Cap | 52.3% |
| Small Cap Value | 121.3% | Small Cap Value | 198.6% |
| Real Estate | 175.6% | Emerging Markets Large Cap | 154.3% |
| Emerging Markets Small Cap | 176.7% | ||
| Emerging Markets Value | 212.7% |
Hardly what I'd call a "lost decade." But this does not mean, go run out and put all your money in emerging markets as you chase last years performance. It means follow an asset allocation strategy that spreads your investment across all these classes so that if one class doesn't perform well the performance of other classes can keep your portfolio on an upward trajectory.
Great point about not chasing returns. When you chase returns you get burnt.
ReplyDeleteYou make the case for rebalancing. Just imagine how much higher those returns would have been with a rebalanced portfolio.
I personally time the markets. My perspective looks at investments that do well in up markets.
Hi Daddy Paul,
ReplyDeleteI looked at your web site, and wish you luck with your timing strategy. I have no talent for it.
JD