Investing in different asset classes – i.e. spreading your money across a selection of asset types, countries and sectors – can help moderate some of the risks, meaning your investments stand a better chance of achieving more consistent returns.
The proof of the proverbial pudding is this graph, which shows how each asset type has performed over the past decade. As you can see, there are plenty of ups and downs among all of the assets, both in the short and long term. For example, US equities topped the charts in 2020; however, in 2022 it was languishing in seventh place. What’s more, between 2015 and 2022, commodities jumped from the bottom of the chart (2015) to second place (2016) and then back down to the bottom again (2017), before leaping to the top spot in 2021 and 2022.
It’s true: no-one can predict which investment is going to produce the best returns year after year, and the best-performing investment in one year can often turn out to be the worst-performing investment the next. Being dependent upon the performance of one company can leave you exposed to societal changes and global crises.
Of course, it can be difficult to sit tight as your investments fall in value. But to quote Corporal Jones: ‘Don’t panic!’.