Attached is the updated table ranking asset class returns over the last 15 years which shows last year’s returns led by small cap stocks with commodities posting the largest loss. Often, instead of spreading risk and investing for the long term, investors look at last year’s big performers and want to move significant portions of their portfolio to those asset classes. This chart, however, is not a road map of where to invest for 2014 but an illustration on the importance of allocating risk across asset classes.
Behavioral finance, which studies the effect of psychology on investors and markets, has identified a phenomenon called heuristics.
Working in the industry for over 20 years, I have often seen one common mistake made by investors; chasing last year’s hot dot. Very seldom have I seen someone recommend buying an asset class when it’s down significantly or after the media has pounded the table about poor results. All too often the euphoria of […]