Markets in a Minute
Asset Class Risk and Return Over the Last Decade (2010-2019)
This Markets in a Minute Chart is available as a poster.
This Markets in a Minute Chart is available as a poster.
The Importance of Asset Classes
Asset allocation is one of the most important decisions an investor can make. In fact, studies have found that the percentage of each asset type held in a portfolio is a bigger contributor to returns than individual security selection.
However, it’s important for investors to select asset classes that align with their personal risk tolerance—which can differ based on how long they plan to hold an investment—and their targeted returns. This Markets in a Minute chart from New York Life Investments shows asset class risk and return data from 2010-2019 to highlight their different profiles.
Asset Class Risk and Return
To measure risk and return, we took annualized return and standard deviation data over the last ten years.
Annualized returns show what an investor would have earned over a timeframe if returns were compounded. It is useful because an investment’s value is dependent on the gains or losses experienced in prior time periods. For example, an investment that lost half of its value in the previous year would need to see a 100% return to break even.
Standard deviation indicates risk by measuring the amount of variation among a set of values. For example, equities have historically seen a wide range in returns, meaning they are more volatile and carry more risk. On the other hand, treasuries have typically seen a smaller range in returns, illustrating lower volatility levels.
Below is the risk and return for select asset classes from 2010-2019, organized from lowest return to highest return.
| Asset Class | Annualized Return | Annualized Standard Deviation |
|---|---|---|
| Global Commodities | -5.38% | 16.60% |
| Emerging Markets Equity | -0.89% | 16.95% |
| Treasury Coupons | 0.73% | 0.81% |
| Investment Grade Bonds | 3.17% | 2.92% |
| Hedge Funds | 4.05% | 5.70% |
| Corporate Bonds | 5.55% | 5.26% |
| Global Listed Private Equity | 5.59% | 18.63% |
| 1-5yr High Yield Bonds | 6.71% | 1.00% |
| Global Equity | 6.75% | 12.50% |
| Global Equity - ESG Leaders | 6.87% | 12.03% |
| Taxable Municipal Bonds | 7.20% | 7.33% |
| Real Estate Investment Trusts | 8.44% | 11.03% |
| U.S. Mid Cap Equity | 11.00% | 13.60% |
| U.S. Large Cap Equity | 11.22% | 11.39% |
| Dividend-Paying Equity | 11.81% | 10.24% |
| U.S. Small Cap Equity | 11.87% | 14.46% |
Note: See the bottom of the graphic for the specific indexes used.
Global commodities saw the lowest return over the last 10 years. Plummeting oil prices, and an equities bull market that left little demand for safe haven assets like precious metals, likely contributed to the asset class’ underperformance.
Backed by the U.S. federal government, Treasury coupons had the lowest volatility but also saw a relatively low return of 0.73%. In contrast, 1-5 year high yield bonds generated a return of 6.71% with only slightly more risk.
With the exception of emerging market equity, all selected equities had higher risk and relatively higher historical returns. Among the stocks shown, dividend-paying equity saw the highest returns relative to their risk level.
Building a Portfolio
As they consider asset class risk and return, investors should remember that historical performance does not indicate future results. In addition, the above data is somewhat limited in that it only shows performance during the recent bull market—and returns can vary in different stages of the market cycle. For example, commodities go through multi-decade periods of price ascent and decline known as super cycles.
However, historical information may help investors gauge the asset classes that are best suited to their personal goals. Whether an investor needs more stability to help save for a near-term vacation, or investments with higher return potential for retirement savings, they can build a portfolio tailored to their needs.
Markets in a Minute
The Top 5 Reasons Clients Fire a Financial Advisor
Firing an advisor is often driven by more than cost and performance factors. Here are the top reasons clients ‘break up’ with their advisors.
The Top 5 Reasons Clients Fire a Financial Advisor
What drives investors to fire a financial advisor?
From saving for a down payment to planning for retirement, clients turn to advisors to guide them through life’s complex financial decisions. However, many of the key reasons for firing a financial advisor stem from emotional factors, and go beyond purely financial motivations.
We partnered with Morningstar to show the top reasons clients fire an advisor to provide insight on what’s driving investor behavior.
What Drives Firing Decisions?
Here are the top reasons clients terminated their advisor, based on a survey of 184 respondents:
| Reason for Firing | % of Respondents Citing This Reason | Type of Motivation |
|---|---|---|
| Quality of financial advice and services | 32% | Emotion-based reason |
| Quality of relationship | 21% | Emotion-based reason |
| Cost of services | 17% | Financial-based reason |
| Return performance | 11% | Financial-based reason |
| Comfort handling financial issues on their own | 10% | Emotion-based reason |
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
While firing an advisor is rare, many of the primary drivers behind firing decisions are also emotionally driven.
Often, advisors were fired due to the quality of the relationship. In many cases, this was due to an advisor not dedicating enough time to fully grasp their personal financial goals. Additionally, wealthier, and more financially literate clients are more likely to fire their advisors—highlighting the importance of understanding the client.
Key Takeaways
Given these driving factors, here are five ways that advisors can build a lasting relationship through recognizing their clients’ emotional needs:
- Understand your clients’ deeper goals
- Reach out proactively
- Act as a financial coach
- Keep clients updated
- Conduct goal-setting exercises on a regular basis
By communicating their value and setting expectations early, advisors can help prevent setbacks in their practice by adeptly recognizing the emotional motivators of their clients.
Markets in a Minute
The Top 5 Reasons Clients Hire a Financial Advisor
Here are the most common drivers for hiring a financial advisor, revealing that investor motivations go beyond just financial factors.
The Top 5 Reasons Clients Hire a Financial Advisor
What drives investors to hire a financial advisor?
From saving for a down payment to planning for retirement, clients turn to advisors to guide them through life’s complex financial decisions. However, many of the key reasons for hiring a financial advisor stem from emotional factors, and go beyond purely financial motivations.
We partnered with Morningstar to show the top reasons clients hire a financial advisor to provide insight on what’s driving investor behavior.
What Drives Hiring Decisions?
Here are the most common reasons for hiring an advisor, based on a survey of 312 respondents.
| Reason for Hiring | % of Respondents Citing This Reason | Type of Motivation |
|---|---|---|
| Specific goals or needs | 32% | Financial-based reason |
| Discomfort handling finances | 32% | Emotion-based reason |
| Behavioral coaching | 17% | Emotion-based reason |
| Recommended by family or friends | 12% | Emotion-based reason |
| Quality of relationship | 10% | Emotion-based reason |
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
While financial factors played an important role in hiring decisions, emotional reasons made up the largest share of total responses.
This illustrates that clients place a high degree of importance on reaching specific goals or needs, and how an advisor communicates with them. Furthermore, clients seek out advisors for behavioral coaching to help them make informed decisions while staying the course.
Key Takeaways
With this in mind, here are five ways advisors can provide value to their clients and grow their practice:
- Address clients’ emotional needs early on
- Demonstrate how you can offer support
- Use ordinary language
- Provide education to help clients stay on track
- Acknowledge that these are issues we all face
By addressing emotional factors, advisors can more effectively help clients’ navigate intricate financial decisions and avoid common behavioral mistakes.
The Top 5 Reasons Clients Fire a Financial Advisor
The Top 5 Reasons Clients Hire a Financial Advisor
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