Good reads from around the Web.
The best article I read this week was from Carl Richards, writing about diversification for The New York Times.
We often hear how the years from 2000 to 2010 were terrible for investors in shares, even from me.
But in his piece, Richards points out that for a properly diversified investor, there were still good equity returns to be had:
When you view this 10-year period from the perspective of a diversified and balanced portfolio, 2000-2010 was anything but a lost decade.
Consider the following (all numbers reflect annualized returns over 10 years and include reinvested dividends):
U.S. large stocks (the S.&P. 500) = 1.4 percent
U.S. small stocks (the Russell 2000 Index) = 6.3 percent
U.S. real estate stocks (the Dow Jones US REIT index) = 10.4 percent
International stocks (MSCI EAFE Index) = 3.9 percent
Emerging markets stocks (MSCI Emerging Markets Index) = 16.2 percent
Richards suggests that an investor who wanted to be reasonably diversified ten years ago might have simply split their money between these five asset classes. Then they left to compound, without trading or rebalancing or anything else.
The return for this diversified portfolio over the ‘lost decade’ was an annualized 8.35 percent!
Splitting the portfolio 60/40 between equities and bonds reduces the return to 7.83%.
Not a huge difference, and for many people a price well worth paying to reduce the pain of the declines in 2007 and 2008.
From the money blogs
- Dealing with stock market volatility – Oblivious Investor
- 5% rebalancing bands – The Finance Buff
- Market mayhem or golden opportunity? – UK Value Investor
- Investment analysts, sunk by Deepwater Horizon – The Psy-Fi blog
- Making better decisions – iii blog
- How long might retirees live with no remaining money? – Wade Pfau
- The folly of forgetting your investment style – Mon£yGrow£rs
- Post-recession US employment [graphic] – Business Insider
- Finance blog traffic as a contra-indicator – The Big Picture
Mainstream media money
- Behavioral Finance: Special Report – Bloomberg
- Melbourne now world’s most liveable city – The Economist
- Cash hordes are destroying value in the tech sector – Forbes
- Wall Street’s unemployment machine – The Motley Fool
- No hope for sale of UK bank shares before election – FT
- When does it pay to exit a mortgage early? – FT
- Second home owners forced to cut prices – FT
- Ditch dog funds [and buy index trackers instead!] – FT
- What John Lee has been buying recently – FT
- Post Office extends inflation linked savings account – Telegraph
- Gold fund returns lagging the rising gold price – Telegraph
- Your vegetable patch, their garden – The Guardian
Like these links? Get them every weekend.