16 Jan COTW: Is it about the journey, or the destination?
- While the journey of the asset classes, styles and sectors below may have taken very different paths over the last five years, their returns have nearly converged.
- For example, in January 2022, the S&P 500 Growth Index was outperforming the other constituents of the chart, while the S&P 500 Energy Sector was leading the downside. Growth was outperforming energy by more than 130%. However, 12 months later, these two sectors now have a return differential of only 9%. Similarly, gold, often considered a ‘safe haven asset’, has a five-year return only 5% lower than the S&P 500 Energy Sector, a historically volatile sector.
- This chart underpins the importance of a diversified portfolio. While outcomes over certain time periods may often be quite similar, volatility along the journey can be greatly reduced through diversification and regular rebalancing forces the investor to buy low and sell high along the way.
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