Recently I was looking at the last 20 years of investment returns for five major asset classes:
• Large U.S. stocks
• Small U.S. stocks
• Stocks of Developed Countries outside the U.S.
• Long-Term Government Bonds (20 year bonds)
• Government Bills (30-day U.S. government bills)
Over the 20-year period from 1995 through 2014, this is the number of times each asset class had the highest return for a year:
• Small U.S. Stocks 6
• International Stocks 5
• Long-Term Government Bonds 5
• Large U.S. Stocks 4
• Government Bills 0
Looking at these numbers, you can see that there was no one best asset class in which to be invested over the last 20 years. And there is little persistence. International stocks were the highest performing class from 2004—2007 and then were the worst performing asset class one year later in 2008. Small U.S. stocks were the best to own from 1995–1998 and were the worst investment in 2000.
Here’s a fun fact. In spite of a commonly held current belief, did you know that large U.S. stocks have not had the best one-year return since 1998! In 2014, the best return came from Long-Term Government bonds (23.9% return; Large U.S. Stocks returned 13.7%).
Keep this in mind the next time you’re tempted to invest heavily in one asset class because of recent performance. Our memories tend to be short and we also tend to put more emphasis on what has happened recently rather than paying attention to the long-term trend.