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  • Market Commentary

The Periodic Table of Investment Returns + 1.22.25

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Josh Jenkins, CFA, Chief Investment Officer, Principal
January 22, 2025
The Periodic Table of Investment Returns + 1.22.25

The start of a new year offers investors a good opportunity to step back and recalibrate their expectations for the road ahead. A great tool to assist with this exercise is known as a Callan chart. You might know it as the ‘Periodic Table of Investment Returns' or an ‘Asset Allocation Quilt.’ This graphic, popularized in the late 1990s by the Callan Institute, provides an easily digestible illustration of past market returns. 

The version of the chart found below illustrates asset class returns over the last 20 years. Each column within the table reflects one of those years, with the 12 asset classes ordered from the highest performer to the lowest.

1-Jan-22-2025-02-39-41-8575-PM

Source: Morningstar Direct. Asset classes were represented by the following ETFs: Large growth (VUG), large cap (IVV), large value (VTV), mid cap (IJH), small cap (IJR), REITs (VNQ), international stocks (EFA), emerging market stocks (EEM), TIPS (TIP), and bonds (AGG). Cash was represented by the Bloomberg Treasury Bill 1-3 Month Index. The “Balanced” asset class was represented by a composite benchmark, comprised of 39% Russell 3000 TR Index, 21% MSCI ACWI Ex US NR Index, 38% Bloomberg US Aggregate TR Index, and 2% Bloomberg Treasury Bill 1-3 Month TR Index. The 20-Year Return figure was annualized. The 20-Year volatility is based on annualized standard deviation.

A few observations from the table:

  • There is no observable pattern present in the data, and the returns are largely random. Consequently, attempts to improve returns by rotating between asset classes are just as likely to hurt performance as they are to help.
  • Diversification across all the asset classes ensures that an investor will participate in the top returner in each period. There is no need to guess and risk missing out.
  • Investors are typically rewarded by taking on market risk as opposed to staying in cash.
  • Bonds have historically shown up for investors during the most tumultuous years. Think back to the Financial Crisis in 2008, the European Debt crisis in 2011, the trade war in 2018, or the bear market in 2022. In these periods of high market volatility, bonds generally delivered much better performance than stocks.     
  • An investor who diversifies across both stock and bond asset classes is likely to experience a much smoother ride than an investor who concentrates on one vs the other. The gray ‘Balanced’ asset class above represents a classic 60/40 allocation of stocks and bonds. As you can see, it seldom strays from the middle of the pack.
  • Large caps and large growth have dominated over the last 10 years. That is a long enough period for many to feel like this is the normal order of things. Interestingly, the 10 years prior (2004-2014) looked very different. During that earlier period, large caps and large growth were seldom among the top-performing asset classes.

So, what should investors expect as we move forward? Maybe the large growth companies in the U.S. will continue to dominate, or maybe a new set of asset classes will emerge and move to the top of the heap. It’s impossible to know what the next 10 years will have in store for us. Fortunately, knowing the answer is not required for investment success. As the Callan Chart highlights, the relative winners and losers are largely random and tend to change from one cycle to the next. History urges us to embrace the unexpected. Investors should get invested, stay diversified, and avoid market timing.


Week in Review

  • Last week, the Bureau of Labor Statistics (BLS) provided an update on the Fed’s progress against inflation when it published the December Consumer Price Index (CPI). The data showed that CPI rose 0.4% in the month and 2.9% year-over-year. The monthly rise was slightly larger than anticipated and was largely driven by Food & Energy prices. Core CPI, which strips out food and energy, rose a less than expected 0.2% (3.2% year-over-year).
  • The U.S. Retail sales data for December was released last Thursday and showed that sales at U.S. retailers rose 0.4% in December. The National Retail Federation (NRF) also released its own data for the holiday season (November-December) which excludes Auto sales and Gas/Food Service sales. The NRF’s data highlighted that November-December sales reached a record high of $994.1 billion, pointing to the continued strength of the American consumer.
  • According to FactSet, 9% of the S&P 500 has reported Q4 2024 results as of last Friday, January 17th. The earnings growth rate, blended between companies that have already reported with the estimates for those that have yet to report, is at 12.5% year-over-year, which would mark the highest year-over-year earnings growth rate reported by the index since Q4 of 2021. Key earnings to watch for this week include Netflix, Charles Schwab, Amazon, Procter & Gamble, and Johnson & Johnson.

Hot Reads

Markets 

  • Core Inflation Rate Slows to 3.2% in December, Les than Expected (CNBC)
  • Retail Sales Rose 0.6% in December, Topping Expectations for Holiday Shopping (CNBC)
  • ‘We Still Have an Inflation Problem.’ A Fed Newcomer Wants to Go Slow on Rate Cuts (WSJ)

Investing 

  • How Often Are We in a Recession or Bear Market (Ben Carlson)
  • Is There a Problem with Passive Investing (Nick Maggiulli)
  • Minimum Levels of Stress (Morgan Housel)

 Other 

  • Do you Really Need to Take 10,000 Steps a Day – TED-Ed (YouTube)
  • How Did the Enigma machine Work (YouTube)
  • Why Amazon, Microsoft, Google, and Meta are Investing in Nuclear Power – CNBC (YouTube)

Markets at a Glance

2-Jan-22-2025-02-39-41-8468-PM

3-Jan-22-2025-02-39-41-7376-PM

4-Jan-22-2025-02-39-41-7300-PM

Source: Morningstar Direct.

5-Jan-22-2025-02-39-41-7307-PM

Source: Morningstar Direct.

6-Jan-22-2025-02-39-41-7115-PM

Source: Treasury.gov

7-Jan-22-2025-02-39-41-6939-PM

Source: Treasury.gov

8-Jan-22-2025-02-39-41-6637-PM

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

9-Jan-22-2025-02-39-41-6495-PM

Source: FRED Database & ICE Benchmark Administration Limited (IBA)


Economic Calendar

10-Jan-22-2025-02-39-41-6503-PM

Source: MarketWatch

IMPORTANT DISCLOSURE INFORMATION

  • Competition, Achiever, Relator, Analytical, Ideation

Josh Jenkins, CFA

Chief Investment Officer, Principal

Josh Jenkins, Chief Investment Officer, began his career in 2010. With a background in investment analysis and portfolio management from his previous roles, he quickly advanced to his current leadership position. As a member of the Lutz Financial Board and Chair of the Investment Committee, he guides Lutz Financial’s investment strategy and helps to manage day-to-day operations. 

Leading the investment team, Josh directs research initiatives, while overseeing asset allocation, fund selection, portfolio management, and trading. He authors the weekly Financial Market Update, providing clients with timely insights on market conditions and economic trends. Josh values the analytical nature of his work and the opportunity to collaborate with talented colleagues while continuously expanding his knowledge of the financial markets. 

 

At Lutz, Josh exemplifies the firm’s commitment to maintaining discipline and helping clients navigate market uncertainties with confidence. While staying true to the systematic investment process, he works to keep clients' long-term financial goals at the center of his decision-making. 

 

Josh lives in Omaha, NE. Outside the office, he likes to stay active, travel, and play golf. 

402.763.2967

jjenkins@lutz.us

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