Long Term Asset Returns
For anyone who is interested in asset allocation for a portfolio, especially for Strategic Asset Allocation (SAA), it is important to understand what long term means. First, we present the following chart from AQR’s recent article Efficient Frontier “Theory” for the Long Run by Cliff Asness:
The above average returns are excess returns over cash. At the first glance, one would probably infer that the data are all reasonable. In fact, this is exactly what’s expected: reasonable returns over a long period of time, except that the period of time is 45 years. The author then broke down the returns into 9 5 year periods and over there, one would be surprised to find that stocks (S&P 500) could have consecutive two 5 year periods of negative returns! Interested readers should look at the article in more details.
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