Look at all the pretty colors.
Confused?
Let me help.
What you are looking at are color squares that represent various asset classes in investing organized by yearly columns since 2008 from JP Morgan Chase.1
Things like Large Cap Stocks are green, Fixed Income are dark blue, Emerging Market Stocks are light purple, Commodities are dark green, Real Estate Investment Trusts are light blue, etc.
The top of the vertical side of the rectangle marks the best performer of that particular year, while the bottom is the worst.
Here is the most important thing to notice: for the most part, the colors are all over the place.
For example, in 2008 the top performer out all asset classes was fixed income at +5.2%, while the worst performer was emerging market stocks at -53.2%.
But look at the year after.
It was almost the exact opposite.
Emerging market stocks were the best performer and fixed income was the second worst.
Even in years that weren’t as extreme as the Great Financial Crisis of ’08 and ’09, the colors move around.
The last two columns on the far-right show what led in investment return and in investment volatility between 2008 - 2022.
Notice how cash is the least volatile, but aside from commodities, was the worst performer. Furthermore, look at how small cap stocks and REITS were some of the best performers, yet were also the most volatile.
Ahhh, the cardinal rule of investing in color: little risk, little reward; more risk, more reward.
What’s the overall lesson of this chart?
Diversify.
“BOOORRRRING!”, you chirp back.
Some of the most basic things in life and investing are most worth remembering because they are the easiest to forget.
In the long run, boring just might make for a beautiful investment portfolio.
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Sources:
- JP Morgan Chase, Guide to the Markets, p. 62 of 71. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/