One of the most useful tools in understanding returns of various asset classes and categories is known as the Callan Chart (pictured above) that bears a striking resemblance to the Periodic Table most of us have seen in chemistry class. There are few graphical depictions that drive home the importance of diversification than this chart. It illustrates the last twenty years of returns measuring eight major indices.
In looking at the Callan Chart, the most important takeaway is that returns vary widely from year to year and that each asset class and category behaves differently. To put it another way, the importance of diversification is clearly demonstrated. If you take a few moments to read the back of the chart, you'll learn some interesting facts and figures.
- In how many of the last 20 years have all asset classes and categories lost money? Why is this true?
- Which index has been in the bottom half of annual returns most frequently? Why?
- Do bonds always have positive returns?
- Why have international stocks performed so well over the last decade?