Best-performing asset classes
According to Yale University’s Crash Confidence Index, only about 24% of investors are confident the stock market will not crash sometime during the next six months.
If fear leads investors to avoid the entire investment class, they may limit their potential returns.
For example, for most of the 10-year period between 2012 and 2022, stocks outperformed both cash and the 10-year treasury. Cash pulled ahead twice, once in 2018 and again in 2022. The 10-year treasury pulled ahead only once, in 2015, according to a 2022 report from PortfolioVisualizer. That report represents cash by 3-month Treasury Bills. 10-Year Treasury Bond is represented by data from the Federal Reserve Economic Data. Stocks are represented by the Vanguard Total Stock Market
Index Fund, which is an unmanaged fund that is generally considered representative of the U.S. stock market. Index performance is not indicative of past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The 2022 asset numbers are as of October 31, 2022. Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
But the stock market is volatile. Between February 12, 2020, and March 23, 2020, the Dow lost 37% of its value due to the onset of the COVID-19 pandemic. Fortunately, recovery was swift, and by November 2020, U.S. markets had returned to their prepandemic highs.
If the impulse to be safe keeps investors out of the stock market, it may also keep them from taking advantage of the potential returns the stock market has to offer.
A sound investing strategy considers shortterm volatility without losing sight of long-term objectives.
A sound strategy can involve diversifying capital between different classes of investments. That way, under-performance in one type of asset may be offset by the performance of another.
Bear in mind, though, that diversification and asset allocation are approaches to help manage investment risk.
They do not eliminate the risk of loss if a security price declines. The asset class that performs best one year may not do so the next. Diversifying your holdings among several different investment types and understanding that asset classes can move in and out of favor may help you manage the risk in your investment portfolio.
Richard H Mootz, CFP® CERTIFIED FINANCIAL PLANNER™ professional, is a registered representative of and offers securities through Securities America, Inc., a registered broker/ dealer, member FINRA/ SIPC., advisory services offered through Securities America Advisors,
Inc., A SEC Registered Investment Advisory firm. Mootz Financial Solutions and Securities America Companies are not affiliated. He can be reached at 530877-7007; by email rick@mootzfinancial. com or at www. mootzfinancialsolutions. com. Securities America and its advisers do not provide tax or legal advice. Please consult with your tax or legal professional regarding your individual situation. CA Insurance Number 0C75924.