Investing – A Look at the Numbers

I was looking at The Callan Periodic Table of Investment Returns (pdf). If you haven’t looked at it yet, you really should check it out. I took their numbers and applied them to a portfolio that invests equal amounts in each class and rebalances annually. Over the last 20 years (it is hard to believe that 1986 was 20 years ago!), a portfolio with a starting value of $100,000 would have grown to $786,417 (not accounting for expenses). That is an annualized rate of return of over 10.86%. That’s not too shabby considering 12.5% of the portfolio was invested in bonds and 2001-2002 were horrible years.

If you want, you can download the table* I put together and play with the numbers yourself. When you open the spreadsheet, you will see a series of years. Under each year is 4 columns. The first column is the title of the asset class. The second column represents the return of that class for that year. The third column is the percentage of the portfolio dedicated to that asset class. Column four is the weighted return for that asset class (column 2 X column 3 = column 4). The portfolio return for any given year is the sum of the weighted returns (column 4).

So, what’s the point of all this? Well, for one, it is stupid to try to time the market. Sure, you may get lucky and pull it off a time or two. However, looking at the Callan Table suggests that there is no pattern to be found. So, the best thing to do is use the volatility to your advantage by investing equal amounts in each class and rebalance them annually. Rebalancing annually keeps you disciplined and makes you sell “overpriced” classes and use the proceeds to buy “underpriced” classes.

Bottom line: Investing is easy. Don’t make it harder than it has to be.

*This is a 2003 Excel file. Download at your own risk. Sorry, I can’t offer support.

5 thoughts on “Investing – A Look at the Numbers”

  1. An interesting idea, and certainly a good one for those who don’t want to actively manage and educate themselves about investing and their personal portfolios.

    However, for those who do wish to take the time, I think Warren Buffett would disagree with you about diversifying into all of these different asset classes. There are plenty of fund managers who can disprove this theory.

    Take for example VGHCX, the Vanguard Health Care Fund, which has returns close to 20% for the past 20 years.

    Thanks for the information about the The Callan Periodic Table of Investment Returns, and your EXCEL spreadsheet as well. This is truly fascinating stuff.

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