This chart shows and compares historical returns by asset class from 2004-2014.
How do investments in bonds, equities, real estate, gold, and commodities compare over time?
There are a few lessons worth noting here. First, despite gold having a difficult last few years, it is actually the best performing asset class over the last decade, returning 10.0% annualized. Gold was also the #1 or #2 performer for five of seven years straight between 2005 and 2011. It just goes to show the intensity of bull and bear markets in the metal, and reinforces the fact that it takes multiple years to cool down that momentum before the next upswing may start.
Next, the importance of diversification is almost self-evident. Stocks in emerging markets, for example, just crush other assets in the good years. In the bad years, they are the worst performing assets on the chart. Imagine having a portfolio of just stocks in emerging markets, and you have a financial roller coaster that would make any investor queasy.
Lastly, outside of highly-leveraged Wall Street traders, most investors consider bonds to be quite boring. In the last decade, returns of the Barclays Aggregate Bond Index have ranged between -2.0% and 7.8%. Bonds are typically considered a relatively consistent and less volatile asset class, which help create a baseline for a portfolio. However, on this chart, bonds are all over the map because it is the other investments that are swinging with volatility. In the 2008 crisis, bonds were actually the best performing class with a 5.2% return.
To be fair, there is much speculation of a bond bubble lately, so bonds may not be boring for long.
Returns by asset class chart legend:
Original graphic by: Business Insider