The 2009 Callan Periodic Table of Investment Returns was recently published. A link to the Periodic Table is here. BlackRock also publishes a table, which I prefer because the table includes a Diversified Portfolio. A link to the BlackRock 2009 table is here.  You can also click on the thumbnail image below.

Some observations:

• Large Cap Core, AKA S&P 500 Index, swung from a -37% loss in 2008 to a 26.5% gain in 2009, while fixed income, AKA Aggregate Bond Index, provided a steady return of 5.2% in 2008 and 5.9% in 2009.
• The Diversified Portfolio is composed of 35% of the Barclays Capital US Aggregate Bond Index, 10% of the MSCI EAFE Index, 10% of the Russell 2000 Index, 22.5% of the Russell 1000 Growth Index and 22.5% of the Russell 1000 Value Index.
• It’s impossible to predict with any certainty which asset class will “win” in 2010.  Where are all the pundits who predicted a 26.5% return for the S&P 500 in 2009?
• The Diversified Portfolio returned 20.8% in 209, or 78.5% of the S&P 500 all equity asset class.

The table is a pictorial view of the benefit of a diversified portfolio, which consistently provides relative returns in the middle of the pack.  It’s important to own a mix of stocks, bonds, and cash, diversified across multiple asset classes to reduce the volatility of returns in a portfolio.  You can see this by comparing the Diversified Portfolio returns to those of any single asset class over the years.

All of the equity asset classes had significant negative returns.    The S&P 500 lost 37%; the worst year since its creation in 1957.  Prior to 2008 the biggest annual loss was 30% in 1974.  The only asset class with a positive return was the Barclays Capital Aggregate Bond Index.  The bond index name itself was a casualty – formerly known as the Lehman Brothers Aggregate Bond Index. The table is a useful tool to illustrate the benefit of diversification.  However, the 2008 column shows the limits of diversification when the global financial system is in crisis mode.