Diversify And Chill Part 2

On Sunday we looked at a simple diversification of 1/3 each in the S&P 500, gold and emerging market equities. Then in another version we sprinkled in a little managed futures. Today, let's take a little more of a quadrant inspired mix of 25% each into those four.

First, here's as far back as we can go, which is a good long time. Note that I used VBINX for 60/40. It's the retail version of VBAIX that we usually use and it goes back just a little further. 

The 31/31/31/7 blend is a holdover from Sunday. The period studied includes plenty of good times and bad times for the four asset classes in the two versions on the simple diversification. 

Here's just the lost decade for stocks ending 12/31/2009.

The two versions of the simple diversification did ok during the internet bubble and a little better during the financial crisis but the overall growth rate was good or maybe better described as normal when considered against the S&P 500. A CAGR of 8-9% and you'd never know it was a lost decade.

The 2010's were weak for gold, managed futures and emerging all compounded in the threes.

Not a lost decade but certainly weak in the context of the Peter Oppenheimer article that was the prompt for these posts. For the 2010's, price inflation ran at 1.75% so still a decent real return and very little distributable income for anyone wondering about taxes. I actually think compounding above 6% with three of the four muddling along is pretty good.

Finally, the 2020's.

Of course nothing was going to keep up with the S&P 500. No surprise that both versions of the simple diversification held up much better in 2022. Despite having no bonds, the equal weight version had very similar volatility to VBINX in all periods studied. That piece of the result is about blending together assets with low to negative correlation as captured by Portfoliovisualizer.

Diversification can be simple but as we saw, there could be long periods that demand patience. 

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