2013 Asset Allocation Returns

2013 was a big year for U.S. stocks and a losing year for other markets like bonds and emerging market countries. Though many people like to talk about how much the Dow Jones Industrial Average or the S&P 500 stock index gained, in reality few people actually invest all of their capital in U.S. stocks. That is probably more true the more money an investor has. If they want to have it all in stocks, it’s probably after a big year, not before it.

The true way to determine what return investors’ as a group earned in funds or ETFs is to create an asset-weighted composite of all the funds available. Such a composite would weight each fund based on how much money is actually invested in it, so if 50% were in bond funds that lost -2% and 50% was in stock funds that gained 20%, the composite would show an asset-weighted return of (50% x -2% = -1%) + (50% x 20% = 10%) = 9%. You can probably see how arbitrary it is to speak of calendar year returns, but the actual return investors earn is dependent on how much capital was invested in the funds and their gain or loss.

I don’t know of a data source that does that for all available funds, but below is a table from Morningstar that presents a category returns of mutual funds in their “allocation” category.  I highlighted the 1 year return which approximates the calendar year 2013 and horizontally I highlighted two categories that are likely most represent investors’ allocation. The “Moderate Allocation” is like a 60/40 balance of 60% stocks and 40% bonds, which is popular. The “World Allocation” includes global allocation funds which have been some of the best performing funds long term. The Moderate Allocation category gained over 13% and the World Allocation gained about 8%. And, like the stock indexes, most of these mutual funds are fully exposed to loss at all times.

2013 Asset Allocation Returns

Source: Morningstar

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