The latest thinking from Greenspring Advisors.

2014- Reversing Course

J. Patrick Collins Jr., CFP®, EA

While we are only about a quarter of the way through 2014, it has been interesting to look at performance across asset classes.  What we are seeing is that some of the worst performing asset classes of 2013 are off to a great start in 2014.  The numbers are below (using mutual funds as proxies for various asset classes):

Asset Class             Fund Symbol 2013 2014 YTD
US Stocks VFINX 32.18% 0.93%
Int’l Stocks VTIAX 15.14% 0.39%
Real Estate VGSLX  2.42% 9.40%
Bonds VBTLX -2.15% 2.05%
Commodities PCRIX  -14.81% 7.65%

The funds that performed best last year are towards the bottom of the pack so far this year, and the ones showing some of the worst returns last year are now back on top.  The investment markets are impossible to predict.  We continue to believe that being diversified across asset classes is still the optimal approach for investors.  You have to accept a few things when you take this approach:

  1. Your portfolio will never be on the top of this list– if you invest in various asset classes, you have to realize that your portfolio’s performance will be somewhere in the middle of all of these asset classes, since you will be blending your returns across a number of investments.  For years when something like commodities is the best performer, no one really cares because commodities are not a market talked about very often.  But in 2013, the best performing asset class was US stocks.  Many investors who read financial magazines or watch financial TV questioned why their portfolio was not keeping pace with the S&P 500.  This chart above is the reason.
  2. Your portfolio will never be on the bottom of this list– if you concentrate your assets in one asset class, there will come a time when all the other investment markets outperform you.  For most investors, this is a difficult pill to swallow, especially when losses can be severe.  

I often tell clients that when you are properly diversified you always have something to complain about.  This was true last year and will continue to be true moving forward.  The start of 2014 is another example of why staying diversified is so important.