Investment returns are unpredictable

Investors are often led to believe that experts must have some reliable ways to predict what investments will perform better than the rest in any given year. The secret no one wants you to know, is that experts have great difficulty making such predictions. The data shown in the graphic below illustrates how random investment performance can be. One recent example to note is the performance of emerging markets investments (named "EM Mkts" in the graphic, color is orange): in 2011, emerging markets had the lowest return of the group, in 2012, emerging markets were near the top, and in 2013, emerging markets had fallen to the bottom again. It is anyones guess where emerging markets will rank in future years.

"Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” -- Warren Buffett

Annual Investment Returns of Asset Classes Ranked From Highest to Lowest (1999-2013)

The graphic can be downloaded as a printable PDF: Randomness of Returns.

Disclosures: In US dollars. US Large Cap is the S&P 500 Index, provided by Standard & Poor’s Index Services Group. US Large Cap Value is the Russell 1000 Value Index. US Small Cap is the Russell 2000 Index. US Small Cap Value is the Russell 2000 Value Index. Russell data © Russell Investment Group 1997−2014, all rights reserved. US Real Estate is the Dow Jones US Select REIT Index, provided by Dow Jones Indexes. International Value data provided by Fama/French from Bloomberg and MSCI securities data. International Small Cap data compiled by Dimensional from Bloomberg, StyleResearch, London Business School, and Nomura Securities data. International Small Cap Value data compiled by Dimensional from Bloomberg and StyleResearch securities data. Emerging Markets is the MSCI Emerging Markets Index (gross dividends), © MSCI 2014, all rights reserved; see MSCI disclosure page for additional information. One-Year US Fixed is the BofA Merrill Lynch One-Year US Treasury Note Index, used with permission; © 2014 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Five-Year US Government Fixed is the Barclays Capital Treasury Bond Index 1−5 Years, formerly Lehman Brothers, provided by Barclays Bank PLC. Five-Year Global Fixed is the Citigroup World Government Bond Index 1−5 Years (hedged), © 2014 by Citigroup. 

Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

G Disain