This past week celebrates the 150th anniversary of the Periodic Table of Elements, that wonderful and neatly organized piece of wall art in every chemistry classroom!
The first periodic table was designed by Dmitri Mendeleev, a mad-scientist looking, card-game-loving Russian professor at the University of St. Petersburg. To meet a looming chemistry text book publication deadline, he was racking his brain on how to organize the 63 then-known elements in a thoughtful manner. By mimicking a deck of playing cards, Mendeleev was able to organize the elements into "suits" that shared both physical and chemical characteristics … and the rest is history.
Today's table now has a square for each of the 118 known elements (only 94 occur naturally, while the rest need to be synthesized in a lab). The table is beautifully organized (at least as far chemistry things go) into seven rows, called periods, hence the name. Metals are on the left, and non-metals are on the right. Each column, called a group, contains elements with similar chemical behaviors.
The investment world has a similar beautifully organized "Periodic Table" of its own. Only in this case, it is the Periodic Table of Investment Returns.
Each column in the table below represents the last 10 calendar years of investment return performance starting with 2009 on the left and then moving right through 2018. Each square represents the specific return for an index proxy of an asset class, such as U.S. Large Cap Equities were down 4.8% in 2018 while Cash and Fixed Income were the only positive-performing asset classes. Take a look.
There are (at least) two important take-aways from the chart.
The first is no one has a crystal ball that can consistently predict how each asset class will perform in the future. A winning asset class from one year can be a big loser the next year. Emerging Market Equity is a good example. If you the follow the path of that block from left to right, it oscillates from top to bottom. It was the winning asset class in 2017 but second to last place in 2018.
Note the green square. It represents a diversified portfolio of the other asset classes shown in the table — think a well-rounded, diversified portfolio used by the average investor made up of the following proxy index weightings:
- 33% Russell 3000 Index (for U.S. Equities)
- 22% MSCI World ex USA Index (for Foreign Developed Equities)
- 5% MSCI Emerging Market Index (for Emerging Market Equities)
- 5% S&P Global Infrastructure Index (for Global Infrastructure Equities)
- 5% DJ Global Select RESI Index (for Global Real Estate Equities)
- 30% Barclays U.S. Aggregate Index (for U.S. Fixed Income)
The second important take-away is how the green square is consistently in the middle of the performance results. One of the few things we know with certainty is that the green square will always be in the middle, while it is anyone's guess on which specific asset classes outperform and which underperform within that portfolio. This is a feature and not a flaw of owning a diversified investment portfolio.
As an important side note, we also celebrated another important anniversary last week besides the Periodic Table of Elements. March 6, 2009, marked the low point for the major U.S. equity markets during the 2008-2009 financial crisis and the start of the incredible bull market we find ourselves in today. It feels good to finally get the 2008 asset class performance off the 10-year look back on the Periodic Table of Investment Returns!
Contact Russell Moenich to learn more about this topic.