Why you should maintain a balance of exposures in today’s market conditions – Financial Mail (registration)

While financial studies show that investing in equities is the best way to beat inflation over the long term, determining which will be the top-performing asset class over the shorter term is extremely difficult.

Consider the relative annual performance of various local and international asset classes over the past 20 years. It appears entirely random. During this period, all the asset classes bar South African cash have been the top-performing asset class at least once, and all eight have been the worst-performing asset class at least once.

It is also worth noting the volatility of asset-class returns from one year to the next. In 1999, for example, the return for South African equities was 70.8%, making it the top-performing asset class; in 2000 it was 0.4%, making it the worst-performing asset class. In 2001, South African equities delivered 32.6% and a year later -8.3%!

Time counts

This illustrates how difficult it is for the average investor to select the best-performing asset class for the next year. However, as expected over the full 20-year period, returns normalise and growth assets (equities and property) outperform fixed-income assets (cash and bonds), as illustrated below.

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