After periods of asset allocation underperformance, what happens next? As the chart below shows, when the S&P 500 has outperformed a diversified portfolio over a trailing five-year period, the following five years typically result in an underperformance relative to the diversified portfolio of roughly 4.4% per year. This should help to assuage some concern and make a strong case for asset allocation: underperformance won’t be persistent, and typically reverses itself to the diversified investor’s benefit. As a result, if history is any guide, investors should remain patient, avoid emotional biases and stick to a plan.
* 60/40 S&P/Barclays AGG