(102176049) Rewards of Multiple Asset Class Investing - Gibson

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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e " of "#

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The Best of 25 Years

The Rewards of Multiple-Asset-Class Investing

by Roger C !ibson" C#A" C#$%

&ditor's note("his month# in honor o$ the Journal of Financial Planning's 2%th

anniersary# !e are rerintin' ("he Re!ar)s o$ *ultile-Asset-+lassInestin'#( ,y Ro'er + .i,son# +FA# +FP/# ori'inally u,lishe) in*arch 111 "his ersuasie an) rescient article ma)e the case#eactly one year ,e$ore the stoc3 mar3et ,e'an its )ramatic lun'e in2000# $or the alue o$ )iersi$yin' amon' asset classes as a !ay tore)uce olatility an) increase oerall returns

Roger C. Gibson, CFA, CFP, is perhaps best known as the author ofAssetAllocation: alancin' Financial Ris3# "hir) 5)ition (cGraw !ill". Roger has been afre#uent speaker at professional conferences on the topics of asset allocation an$in%estor beha%ior for two $eca$es. !e is the

presi$ent of Gibson Capital anage&ent t$., an in%est&ent a$%isor fir&locate$ in Pittsburgh, Pennsl%ania, that ser%es high net worth clients an$institutions nationwi$e.

)et e%er &an $i%i$e his &one into three parts, an$ in%est a thir$ in lan$, a thir$ inbusiness, an$ a

thir$ let hi& keep inreser%e.)6"almu)

+irca 200 +7%00A

Asset allocation is not a ne! i)ea9 "he "almu) uote a,oe is aroimately 2#000 yearsol) ;hoeer sai) it 3ne! somethin' a,out ris3


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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e 2 of "#

iersi$ication across t!o maor $orms o$ euity inestin' !ith )issimilar atterns o$returns $urther re)uces the euity ris3 "he result is a ,alance) ort$olio# tilte) to!ar)euities# aroriate $or an inestor !ith a lon'er inestment time horion !ho issimultaneously concerne) a,out ris3 an) return It is a remar3a,ly ele'ant an) o!er$ulasset allocation strate'y Ima'ine tryin' to )eelo a one-sentence inestment strate'y#3no!in' that a !i)e ariety o$ inestors# most o$ !hom are not yet ,orn# !ill $ollo! thea)ice $orthe net 2#000 years9 You !oul) ,e har)-resse) to come u !ith somethin' ,etter

"he un3no!n author o$ the "almu) uote coul) not hae ossi,ly enisione) to)ay=sinestment !orl) Ber the ast )eca)e# )emocracies an) $ree enterrise haerelace) many o$ the !orl)=s )ictatorshis an) centrally )irecte) economies Ne!caital mar3ets are $ormin'# an) inestment alternaties hae roli$erate) Peole$rom aroun) the !orl) can echan'e olumes o$ in$ormation instantaneously ia theInternet# irtually !ithout cost "he !orl) has truly 'otten smaller an) increasin'lyinterconnecte) as economic eents in one art o$ the !orl) a$$ect mar3ets on the othersi)e o$ the 'lo,e

In site o$ all o$ this chan'e# inestors are not that )i$$erent to)ay than they !ere ahun)re) years a'o "hey !ant hi'h returns# an) they )o not !ant to incur ris3 insecurin' those returns iersi$ication is atime-honore) inestment rincile In this article# let=s elore the role o$ multile-asset-

class )iersi$ication in 'iin' inestors the returns they lon' $or# !hile miti'atin' the ris3sthey $ace

International Investing

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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e # of "#

An ol) a)a'e a)ises us to (not ut all o$ our e''s in one ,as3et( Althou'h there areo,ious a)anta'es to usin' more than one ,as3et to carry our e''s# the ,ene$its o$)iersi$ication are more o!er$ul an) su,tle than this a)a'e su''ests

;hen !e construct an inestment ort$olio usin' multile asset classes# !e )iscoer

that ort$olio olatility is less than the !ei'hte) aera'e o$ the olatility leels o$ itscomonents "his occurs as a result o$ the )issimilarity in atterns o$ returns amon' thecomonents o$ the ort$olio ;e !ill call this a)anta'eous re)uction in ort$olio olatilitythe )iersi$ication e$$ect

Fi'ure sho!s a ie chart )eictin' the )istri,ution o$ the total inesta,le caital mar3et as o$ecem,erC# 11D ;hy not ta3e )iersi$ication to its lo'ical conclusion an) )esi'n ort$oliosthat use all o$ these maor !orl) asset classes@ "his !oul) 'enerate moreoortunities $or the us an) )o!ns o$ one asset class to artially o$$set the us an))o!ns o$ another

?et us ,e'in !ith interest-'eneratin' inestments an) eamine the imact o$internationally )iersi$yin' a )omestic ,on) ort$olio Fi'ure 2 'rahs the comaratieer$ormance oer rollin' 20-year erio)s o$ a00 ercent E lon'-term cororate ,on) ort$olio ersus ort$olios !ith 0 ercent# 20ercent# an) C0 ercent international ,on) allocations "here are si lines on the chart6one $or each 20-year rollin' erio) en)in' 112 throu'h 11D In each case the ,on)

ort$olio olatility )ecrease) an) return increase) as the allocation to international ,on)sincrease) $rom 0 ercent to C0 ercent



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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e ) of "#

Fi'ure C eamines the imact o$ internationally )iersi$yin' a )omestic common stoc3ort$olio "he )ata $orinternational common stoc3 returns ,e'ins three years earlier than$or international ,on)s# an) !e there$ore hae nine rollin' 20-year erio)s to eamineIn all ,ut one 20-year erio)# the international )iersi$ication stea)ily imroe) theort$olio returns as the commitment increase) $rom 0 ercent to C0 ercent "he nota,leecetion !as the 20-year erio) en)in' 11D Ber this time erio)# )omestic stoc3returns !ere su$$iciently hi'her than international stoc3 returns# so as to sli'htly imairthe ort$olio returns as !e a))e) international stoc3s to the )omestic stoc3 ort$olio 2

"his is not an ar'ument a'ainst international )iersi$ication Rather# this ecetionhi'hli'hts the $act that there !ill ,e time erio)s !hen )omestic stoc3s !ill 'eneratehi'her returns than international stoc3s Enless you ossess the mar3et timin' s3ill tore)ict !hich asset class !ill ,e suerior# a )iersi$ie) aroach remains the ,eststrate'y Ber eery 20-year erio)# ort$olio olatility !as lo!er !ith a 0 ercent or 20ercent international commitment An)# in almost eery erio)# olatility remaine) lo!er!ith a C0 ercent international commitment as comare) !ith an all-)omestic commonstoc3 ort$olio



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Multiple-Asset-Class Investing

?et=s no! loo3 at multile-asset-class inestin' in a ,roa)er euity contet "he euitysi)e o$ the ort$olio is usually resonsi,le $or 'reat ort$olio returns !hen they occur"he euity si)e o$ the ort$olio is also most o$ten resonsi,le $or si'ni$icant lossesFi'ure 4 sho!s the er$ormance o$ % )i$$erent euity ort$olios oer the time erio)$rom 1D2 throu'h 11D "he ort$olios are intentionally unla,ele) in or)er to con)uct a(,lin)$ol)e)( eercise B$ these % ort$olios# $our are i)enti$ie) ,y suares# si aretrian'les# $our are )iamon)s an) one is a circle As !e moe to the ri'ht alon' the$i'ure# ort$olio olatility increases ?i3e!ise# returns increase as !e moe $rom ,ottomto to Assume that !e hae a relia,le crystal ,all an) 3no! !ith certainty that each oneo$ these ort$olios !ill hae the same er$ormance oer the net 2G years that it ha)oer the erio) $rom 1D2 throu'h 11D No! ans!er these uestions:

2 I$ you ha) to choose ,et!een o!nin' a ran)omly chosen ort$olio i)enti$ie),y a suare or one i)enti$ie) ,y a trian'le# !hich !oul) you choose: suare ortrian'le@

2 I$ you ha) to choose ,et!een o!nin' a ran)omly chosen ort$olio i)enti$ie) ,y atrian'le or onei)enti$ie) ,y a )iamon)# !hich !oul) you choose@

2 I$ you ha) to choose ,et!een o!nin' a ran)omly chosen ort$olio i)enti$ie),y a )iamon)# or simly o!nin' the circle# !hich !oul) you choose: )iamon)or circle@

I hae as3e) this series o$ uestions to my clients an) to au)iences o$ eole atsea3in' en'a'ements "he ans!ers are consistent ;hen 'ien the choice# eolere$er the trian'les to the suares# the )iamon)s to the trian'les an) the circle to the)iamon)s



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No! turn to Fi'ure % 5ach suare is a sin'le-asset-class ort$olio

(A( is the tan)ar) & Poor=s %00 +omosite In)e H&P %00 "he &P %00 resentlyinclu)es %00 lar'e E stoc3s# as measure) in terms o$ the total mar3et alue o$shares outstan)in' "he in)e measures the total return o$ a caitaliation-!ei'hte),as3et o$ these stoc3s an)# $or our uroses# reresents the )omestic common stoc3asset class



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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e + of "#

(( is the 5AF5 In)e H5uroe# Australia# an) Far 5ast# !hich measures the totalreturn o$ a samle o$ common stoc3s o$ comanies reresentatie o$ the mar3etstructure o$ 20 5uroean an) Paci$ic asin



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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e "( of "#

on the 'rah# .+I has the lo!est return !ith the most olatility Yet the $ie hi'hestreturnin' ort$olios hae as an eual comonent An) the seen least olatileort$olios hae as an eual comonent B,iously there is more 'oin' on here than iscature) ,y the return an) olatility statistics on Fi'ure % ;e are missin' the crucialin$ormation a,out ho! each asset class=s attern o$ returns correlates !ith the others

"he .+I# $or eamle# has a attern o$ returns that is the most )issimilar to the otherasset classes It accor)in'ly ro)uces the stron'est ()iersi$ication e$$ect( !hencom,ine) !ith other asset classes

"a,le sho!s the er$ormance statistics $or the % euity ort$olios "he )ata in thista,le ma3e a ery stron' case $or multile-asset-class inestin' For inestorsconcerne) rimarily !ith maimiin' ort$olio returns# !e see that multile-asset-classstrate'ies hae )ominate) sin'le-asset-class strate'ies For inestors !ho are moreconcerne) a,out olatility# a'ain multile-asset-class strate'ies are )ominant "hehare ratios )islaye) roi)e a ris3-a)uste) er$ormance measurement $or eachort$olioCA'ain# !e $in) multile-asset-class strate'ies )elierin' much hi'her rates o$ris3-a)uste) returns than sin'le-asset- class strate'ies

At the ,ottom o$ "a,le !e $in) summary comarisons $or $our-# three-# t!o- an) one-asset-class aroaches "his summary roi)es erhas the most comellin'ar'ument $or multile-asset-class inestin' As !e moe to!ar) ,roa)er)iersi$ication# rates o$ return increase# olatility leels )ecrease an) hare ratiosimroe "he $our-asset-class ort$olio has a comoun) rate o$ return 2 ercenthi'her than the aera'e comoun) returns o$ its comonents "hat is# a L inestmentin a continuouslyre,alance) ort$olio o$ all $our comonents has a $uture alue o$ LC281# comare) !ith anaera'e $uturealue o$ L2%8 $or the $our comonents stan)in' alone "he $our-asset-class ort$oliohas 4D ercent less olatility than the aera'e olatility leels o$ its comonents An) thehare ratio o$ the $our-asset-class ort$olio sho!s that it has 'enerate) oer t!ice as



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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e "" of "#

much ris3-a)uste) return as the aera'e o$ its comonents

"a,le 2 'ies another icture o$ the ris3 re)uction achiee) ,y the ,rea)th o$)iersi$ication


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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e "2 of "#

aroach !ith the remainin' three asset classes

;e o$ten cannot see the ,ene$icial imact on return create) ,y ,roa)er )iersi$ication,ecause )iersi$ication eamles mi $ie)-income inestments to'ether !ith euityinestments In this situation# the lar'e )i$$erence ,et!een the returns o$ $ie) incomean) euity inestments o,scures the increase in ort$olio return attri,uta,le to the)iersi$ication e$$ect ecause the lon'er-term rates o$ return o$ the $our euity assetclasses use) in our analysis !ere $airly similar# !e can see the ositie imact)iersi$ication has on ,oth )amenin' olatility an) increasin' return

Althou'h one !oul) eect that asset classes !ith similar olatility leels shoul) haesimilar lon'-term 'ro!th aths# !e are e)a'o'ically $ortunate to hae the $our euityasset class returns in our analysis ,e as close as they are As o$ the time o$ this !ritin'#recise return )ata !ere not yet aaila,le $or 0118- "here!ere# ho!eer# stri3in'ly)i$$erent returns across the $our asset classes# ran'in' $rom another $irst lace return $orthe &P %00 to the !orst return eer $or the .+I "he mar3e) )isarity in 118 returns!illtri''er some si'ni$icant reositionin' o$ the % euity ort$olios in olatilityreturnsace It !ill not# ho!eer# inali)ate the ,asic conclusions o$ this aer *ultile-asset-class strate'ies are 'enerally less olatile an) ro)uce an incremental ositie imacton ort$olio return een thou'h )i$$erences in the lon'- term 'ro!th aths o$ the $oureuity asset classes may o,scure reco'nition o$ the return ayo$$

)hy Isn't &veryone *oing Multiple-Asset-Class Investing+

I$ multile-asset-class inestin' is so !on)er$ul# !hy isn=t eeryone )oin' it@ "hereare three rimary reasons First# inestors lac3 an a!areness o$ the o!er o$)iersi$ication "he tyical inestor un)erstan)s that )iersi$ication may re)uceolatility# ,ut susects that )iersi$ication simultaneously imairs returns As !e hae)emonstrate)# )iersi$ication ten)s to imroe returns# not )iminish them Inestorsnee) to ,e e)ucate) a,out this )ual ,ene$it

econ)# the uestion o$ mar3et timin' arises Inestors naturally !ant to ,eliee thatthere must ,e some !ay to re)ict !hich asset class !ill come in $irst lace An) somemoney mana'ers su''est that they# in $act# can accurately ma3e such mar3et timin're)ictions ?et=s assume that !e hae a mar3et timer !ith !hom !e consult annually$or his re)iction o$ the $ollo!in' year=s ,est er$ormin' asset class amon' the &P%00# 5AF5# NAR5I"# an) .+I


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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e "# of "#

o$ ro$essionally mana'e)# )omestic# an) international $un)s# euity an) $ie) income $un)s#as !ell asarious secialty $un)s


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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e ") of "#

Perhas !e are still as3in' too much o$ our mar3et timer ;hat i$ !e as3 him to simlyreco'nie the lon' erio)s o$ )ominance o$ one asset class oer another@ For eamle#our mar3et timer mi'ht instruct us to inest our $un)s in 5AF5 )urin' the ortion o$ the%-year erio) that $ell in the 180s# an) then s!itch to the &P %00 $or the 110s "his

strate'y !oul) hae 'enerate) a comoun) return o$ 228 ercent A'ain# not onemutual $un) mana'er amon' GC8 $un)s achiee) that rate o$ return Aarently#success$ully re)ictin' the er$ormance o$ asset classes is )i$$icult to )o9

Investor $sy,hology

"he thir) reason inoles inestor sycholo'y Inestors use their )omestic mar3et as a$rame o$ re$erence $or ealuatin' their inestment results For eamle# a E-,ase)inestor !ill comare his euity returns !ith a mar3et in)e li3e the &P %00 "his$rame o$ re$erence is not a ro,lem in years !hen the )omestic mar3et un)erer$ormsother asset classes# since )iersi$ication into ,etter er$ormin' mar3ets re!ar)s amultile-asset-class inestor ;hen the )omestic mar3et comes out on to# ho!eer#the inestor erceies that )iersi$ication has imaire) his returns "his sense o$!innin' or losin' arises rimarily $rom the inestor=s imme)iate $rame o$ re$erence Foreamle# the $our-asset-class ort$olio !e hae ,een )iscussin' ha) a 04 ercentreturn in 11D Inestors erceie this as a (!innin'( return 'ien either an 5AF5 or.+I $rame o$ re$erence# since these asset classes ha) returns o$ 20% ercent an) 740D ercent resectiely in 11D "his return is lousy $rom either an &P %00 orNAR5I" ersectie# since these asset classes ha) returns o$ CCCG ercent an) 202Gercent resectiely

5ach year# the multile-asset-class strate'y loses relatie to some o$ its comonentasset classes an) !ins relatie to others "hat is the nature o$ )iersi$ication As o$the )ate o$ this !ritin'# the &P %00 is eeryone=s $aorite asset class# )esite the$act that its return ran3e) Cth an) its olatility !as thir) hi'hest out o$ the % euityort$olios in our eamle "he &P %00=s current oularity is a result o$ itsremar3a,le er$ormance oer the ast $e! years Yet oer the 2G-year erio) o$ ouranalysis# the &P %00 came in $irst lace only $our times "his is $e!er $irst lace $inishesthan 5AF5# NAR5I"# or .+I "he($rame o$ re$erence( ro,lem is articularly acute ,ecause t!o o$ these $irst-lace$inishes haene) uite recently# in 11% an) 11D "his recent erio) o$ &P %00)ominance seems li3e an eternity to inestors an) $uels )issatis$action !ith the lo!erreturns 'enerate) oer the same time erio) ,y a multile-asset- class strate'y As a$rien) in the ,usiness o,sere)# the ro,lem !ith )iersi$ication is that it !or3s !hetheryou !ant it to or not9

;e shoul) not un)erestimate this ($rame o$ re$erence( ro,lem Inestors comare

their inestment results !ith their $rien)s !hile layin' 'ol$ or at coc3tail arties "hetrue multile-asset-class inestor isstill in the minority urin' erio)s !hen the E mar3et reails# he !ill $eel articularlyulnera,le tal3in' !ith $rien)s !ho o!n a more tra)itional )omestic stoc3 an) ,on)ort$olio Recently I ha) a client tell me that he !oul) rather $ollo! a strate'y !here heloses !hen his $rien)s are losin'# than $ollo! a sueriorlon'-term strate'y that at times loses !hile his $rien)s are !innin' "here is ain in ,ein')i$$erent9

5uity inestin' is a lon'-term en)eaor Inestors shoul) )eise an) imlementstrate'ies !ith the lon' term in min) Inestors naturally attach more si'ni$icance torecent inestment eerience than to lon'er- term er$ormance# ,ut they shoul) resistthe temtation to a,an)on more )iersi$ie) strate'ies in $aor o$ chasin' yester)ay=s



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!inner

"he multile-asset-class inestin' analysis resente) here is a e)a'o'ical illustrationthat# $or simlicity# uses eual-!ei'hte) strate'ies o$ arious com,inations o$ the &P%00# 5AF5# NAR5I"# an) .+I Althou'h I am a stron' roonent o$ multile-asset-classinestin'# I )o not recommen) an eual-!ei'hte) strate'y $or my clients *y reasonin' isartially roote) in the sycholo'ical concerns o$ this ($rame o$ re$erence( issue A moresuita,le alternatie !oul) ,e to allocate the $our-asset-class ort$olio 40 &ercent tothe&P %00# C0 ercent to 5AF5# 20 ercent to NAR5I" an) 0 ercent to .+I "hisallocation !ei'htsthe ort$olio in $aor o$ more $amiliar asset classes an) !oul) hae'ien its inestor a GGercent return in 11D "his return still la's the $irst-lace &P %00 asset class# ,utthe er$ormance is closer to the inestor=s $rame o$ re$erence Interestin'ly# thisalternatie !oul) still hae a 'reater return an) less olatility than any o$ itscomonents ha) oer the 2G-year erio) o$ our analysis ut itser$ormance relatie to an eual-!ei'hte) strate'y !oul) ,e in$erior "he comoun) return o$this40C0200 allocation !as 404 ercent# comare) !ith 4C8 ercent $rom the eual-!ei'hte) strate'y Its stan)ar) )eiation o$ 21G ercent !as also !orse than the 0Cercent stan)ar) )eiation o$ the



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eual-!ei'hte) strate'y Althou'h its er$ormance is not as $aora,le# the alternateort$olio structure may still ,e the ,etter choice# 'ien the sycholo'ical issues inole)

Bccasionally# a client $ollo!s this analysis an) uestions its merit ,ecause it relies onhistorical )ata that may ,e irreleant !hen loo3in' into the $uture


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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e "+ of "#

"he most 'eneral leel o$ )ecision ma3in' is la,ele) (Inestment Policy( At this leel#the inestor )etermines his or her allocation amon' short-term )e,t inestments# lon'-term )e,t inestments an) euity inestments "his is the most imortant )ecision theinestor ma3es as it )etermines the ort$olio=s 'ro!th ath throu'h time an) the 'eneralolatility leel u,ect to the inestment olicy )ecisions# the inestor rocee)s to the

(Asset Allocation( leel


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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e ", of "#

ro,ust# not ust in terms o$ olatility re)uction# ,ut also $or return enhancement "oealuate the )esira,ility o$ an asset class as a ort$olio ,uil)in' ,loc3# it is not enou'h to3no! only its return an) olatility characteristics ;e must also 3no! ho! its attern o$returns correlates to the atterns o$ returns o$ the other ort$olio comonents All otherthin's ,ein' eual# the more )issimilarity there is amon' the asset classes !ithin aort$olio# the



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stron'er the )iersi$ication e$$ect# roi)in' inestors !ith not only less olatility# ,ut also'reater returns

"he ,eauty o$ )iersi$ication lies in the $act that its ,ene$its are not )een)ent on theeercise o$ suerior s3ill "hey arise $rom the olicy )ecision to $ollo! a multile-asset-

class inestment aroach Ima'ine $or amoment that each o$ the ort$olios in Fi'ure %reresente) the er$ormance o$ a )i$$erent common stoc3 mana'er# actiely en'a'e) intryin' to outer$orm their cometitors throu'h suerior s3ill in security selection ;e!oul) !ant to 3no! !hat the mana'ers in the uer le$t ua)rant are )oin' to 'eneratereturns that are# on aera'e# oer one ercent hi'her !ith more than a one-thir)re)uction in olatility# as comare) !ith the mana'ers in the lo!er ri'ht ua)rant

Amain'ly# these mar3e) er$ormance a)anta'es )i) not rely on s3ill# ,ut rather asimle olicy )ecision: )iersi$y9

"he multile-asset-class strate'y is a tortoise-an)-hare story Ber any one-year# three-year# or ten-year erio)# the race !ill ro,a,ly ,e le) ,y one o$ the comonent sin'le-asset classes "he lea)er !ill# o$ course# attract the attention "he tortoise neer runs as

$ast as many o$ the hares aroun) it ut it )oes run $aster on aera'e than the maority o$its cometitors# a $act that ,ecomes lost )ue to the attention-'ettin' ace o$ )i$$erentlea) ra,,its )urin' arious le's o$ the race It is note!orthy that the time erio) $or themultile-asset-class analysis resente) in this article is 2G years 4 "he len'th o$ amarathon is 2G miles "hin3 o$ this 2G-year# multile-asset-class illustration as amarathon "he .+I ra,,it le) the $irst thir) o$ therace )urin' the 1D0s "he secon)thir) o$ the race !as run in the 180s# !hen the 5AF5 ra,,it ran the$astest urin' the$inal thir) o$ the race in the 110s# the &P %00 ra,,it !as out-acin' all others "here isal!ays a hare runnin' $aster than the multile-asset class tortoise# an)# )een)in' onthe le' o$ the race# it is usually a )i$$erent hare that ta3es the lea)9 Yet the tortoise# in thelon' run# leaes the ac3 ,ehin) ;e 3no! the moral o$ the story: slo! an) stea)y !insthe race In the en)# atience an) )isciline are re!ar)e) "o secure the re!ar)# !enee) to relinuish our )omestic $rame o$ re$erence an) inest as citiens o$ the !orl)

A,.nowledgents

"his article !oul) hae ,een imossi,le !ithout the assistance o$ many comanies !ho'raciously roi)e) research suort an) caital mar3et )ata Accor)in'ly# I !oul) li3eto than3 I,,otson AssociatesK rinson Partners# IncK alomon mith arneyK *or'antanley & +o IncK National Association o$ Real 5state Inestment "rusts# IncK an).ol)man achs & +o I also !ant to than3 seeral eole on my sta$$ at .i,son +aital*ana'ement# ?t) $or their assistance in research suort# ehi,it rearation# te2tlayoutan) coy e)itin': ren)a erci3# *ichael Reinert# *ona


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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e 2( of "#

3. "he hare ratio is a measure o$ re!ar) relatie to total olatility "he statistic is aratio o$ a ort$olio=s ecess return a,oe that o$ a "reasury ,ill )ii)e) ,y theort$olio=s stan)ar) )eiation- "hehare ratio a$$irms the notion that a ort$olioshoul) 'enerate some incremental re!ar) $or the assumtion o$ olatility#other!ise it !oul) ,e ,etter to simly o!n "reasury ,ills

4. "!enty-si years is the lon'est erio) o$ time $or !hich er$ormance )ata !ereaaila,le $or all $our in)ices reresentin' the euity asset classes

Source: * Roger C. Gibson, +- organ /tanle Capital 0nternational 1se$ with per&ission. * +-0bbotson Associates 0nc. All rights reser%e$. (Certain portions of this work were $eri%e$ fro&coprighte$works of Roger G. 0bbotson an$ Re2 A. /in#uefel$" Copright * (+-" b 3ational

Association of Real 4state 0n%est&ent 5rusts. 3AR405 $ata is reprinte$ withper&ission. /tate&ents, calculations, or charts &a$e b the author which use3AR405 $ata ha%e not been appro%e$, %erifie$, or en$orse$ b 3AR405 G/C0

perfor&ance $ata use$ with per&ission of Gol$&an, /achs 6 Co.



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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e 2" of "#


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FPA Journal - Best of 25 Years: The Rewards of Multiple-Asset-Class Inestin!Pa!e 2# of "#

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(102176049) Rewards of Multiple Asset Class Investing - Gibson