Asset Class Returns for 2005
A happy few minutes were spent updating the Asset Class Returns spreadsheet last Friday after markets closed for 2005. My proxies for the returns discussed below, most of them real-world index mutual funds which any chump can buy, are spelled out in the small spreadsheet linked above, and are also pictured at the bottom of this scintillating post.
Much was made by some that the Dow Jones Industrial Average finished the year down a little over half a percent. Really, though, who cares? The DJIA is a price-weighted average of 30 stocks. A lot of folks mistake the Dow for the stock market when, in actuality, it is a cobbled together price-weighted average of only 30 stocks. It is not much of a proxy for an average investor's experience of the market, and the average investor didn't have too much reason to feel unhappy this year.
US large-cap stocks, as represented by the S&P 500 returned a little under five percent, dividend return/reinvestment included. Small-cap stocks trailed a bit, returning a little over 4.5%.
Real Estate Investment Trusts (REITs), much maligned early in the year, continued to pay out hefty dividends and enjoyed an almost 12 percent return over 2004, assuming dividend reinvestment.
US investors afflicted with home-country bias may have ended the year envious of their more globally-minded counterparts who enjoyed 12.7% returns, if indexing globally, with Asia-Pacific clocking in at 22.6%, Europe chalking up a respectable 9.26%, and Emerging Markets tallying a 32% year-over-year return.
Gold hype prevailed through 2005, and the price appreciation in the Gold ETF GLD was a tasty 17.76%.
Some bond categories didn't manage to return even their yields, though, with TIPS inflation-protected bonds beating their conventional counterparts, still only returning 2.78% themselves.
I felt happy as an investor, then, given that no asset class in my portfolio carried a minus sign ahead of its annual return during the past year. I am sticking with the broad outline of my strategic asset allocation strategy for 2006, and my first buys for the new year will be in International Stocks and in REITs, categories in which I have become slightly underweighted (according to my preferences, which will be spelled out again in a coming post on Asset Allocation) because of the anti-REIT and home-country biases of my 401k's managers.
