Investors who have heard about academic studies on investing returns may know that: up to 90% of your long-term investing return is dependent upon your portfolio’s asset allocation. Asset allocation refers to the proportion of money you have in categories of investments: equities, fixed-income, commodities – and a few of their sub-components.
There are several websites that track asset allocation returns. This is an up-to-date one that you can examine: https://novelinvestor.com/asset-class-returns
It shows 15 years of annual returns for 9 asset classes. Some active investors use tables like this to make minor adjustments to their allocations. For example, if a particular asset has performed well for 3 years, then it is less likely to perform well in the immediate future. Contrarily, if a particular sector has been performing poorly for a number of years, then it may be time to expect it to perform better. These are both contrarian investment ideas; the opposite of which is momentum investing – adding more money to last year’s best asset class. This momentum-asset investing idea has consistently proven to be a losing investment method.
There are many models of asset allocation. If you don’t have one, a couple excellent models for you to consider are:
- The Yale University Endowment Asset Allocation described by its Chief Investment Officer, David F. Swensen, in his book, “Unconventional Success: A fundamental approach to personal investment.”
- Money manager, Mebane Faber’s asset allocation described in his book, “The Ivy Portfolio: How to invest like the top endowments and avoid bear markets.”
- There are many asset allocation models that can be found online, plus there is one in my book as well, “Financial Literacy: timeless concepts to turn financial chaos into clarity.”