A client recently sent me a summary of research done by Fidelity Investments that showed the best performing asset class by decade (thanks David R.). Using average annual return from 1930 through 2009, here are the best asset classes:
1930′s Investment grade bonds 5.4%
1940′s U.S. small cap stocks 20.7%
1950′s U.S. large cap stocks 19.4%
1960′s U.S. small cap stocks 15.5%
1970′s Commodities 21.3%
1980′s Non-U.S. stocks (developed) 22.8%
1990′s U.S. large cap stocks 18.2%
2000′s Emerging market debt 10.9%
Fidelity makes several observations about these data. First, not all asset classes were available in all decades. For example, commodities and non-U.S. stocks in developed countries were not available to retail investors until the 1970′s. Second, the number of new asset classes becoming available to investors is increasing. For example, emerging market debt and Treasury Inflation Protected Securities (TIPS) came on to the scene in the last decade.
What this means is that an investor has greater opportunities for diversification — a cornerstone of most investment portfolios — than ever before. This gives the individual investor the option to complement traditional asset classes with non-correlated asset classes to potentially achieve better returns with less short term risk.
Let me know if you’d like a copy of the article from Fidelity by dropping me an email at steve@finpath.com.