Asset Class Performance - when risk is underestimated

I remember reading Bernstein's views on expected asset class performance back in 2006 - he basically held the view that stock and other growth assets were overpriced, as expected returns didn't justify the high prices. While he didn't explicitly "call" the GFC, I certainly wish I adopted his views and wound back my stock market gearing (continuing to invest in stocks using other people's money made no sense if the returns for the next decade were going to be 5% or less, rather than the "historic average" of around 11%)...

As it turns out, Bernstein was right and I was wrong (although I almost redeemed myself by having index put options in place during 2007 - pity I didn't get around to rolling them over in Dec '07...). The actual asset class performance figures for the past ten years (data from Pitcher Partners) make depressing reading (to 30-Jun-10):

......................1 YR.....3YRS......5 YRS.....10 YRS
Australian Shares ....13.1%....-7.9%......4.5%......7.0%
International Shrs.....5.2%...-11.5%.....-2.2%.....-4.6%
Aust Listed Property..20.4%...-23.8%.....-8.0%......2.9%
Australian Bonds.......7.9%.....7.7%......6.1%......6.4%
Cash...................3.9%.....5.6%......5.8%......5.5%

When you take into account the extra cost of trading shares (or fees for investing via managed funds), it really wasn't worth taking on any investment risk during the past decade.



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