The Investor's Definition of Insanity: Ritholtz Chart

If you think you can consistently pick the best performing asset class each year, you're lying to yourself.


Have a look a the chart above (click on the chart for a larger interactive version). This chart ranks the past 15 years of returns for eight major asset classes (large-cap stocks, small-cap stocks, developed-market stocks, emerging-market stocks, real estate investment trusts, high-grade bonds, high-yield bonds and cash). We can divide these categories even further but we'll use these for now.

What you should take away from the chart is how difficult it is to predict the best-performing asset class in any given year. To choose the right class consistently is almost impossible.

There are glimmers of patterns, but they only appear in hindsight. REITs performed very well in the 2000s, often placing first. Some years they slipped to second, but in 2007 they came in dead last.

Emerging markets have also done well -- at least sometimes. International stocks have ranked second or third most years, in others they were at the back of the pack. At least over the past decade, small caps seem to occupy the middle.

The bottom line is that no one has any idea which asset class is going to come out on top. For most investors, owning a broad, varied collection of asset classes is the best bet.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.