Yes. Over time, asset allocation does more than manage risk; it can potentially boost returns. Consider the three scenarios below, illustrating different strategies used by investors. In each situation, $10,000 was invested annually each January 1, over the past 20 years for a total investment of $200,000.1
The first scenario shows the results of investing in last year's winner (the best-performing asset class), while the second shows the returns generated by investing in last year's loser (the worst performing asset class). The third scenario shows the results of an asset allocation plan that consistently invests across several asset classes in equal proportion each year. While these returns can't guarantee future results, as you can see, asset allocation was the most successful...
| Strategies | Total Investment | Value of Portfolio (12/02) | Average Annual Total Return |
| 1. Chasing the Winners Investing in last year’s best performing asset class 1,2 |
$200,000 | $500,488 | 8.10% |
| 2. Investing with the Losers Investing in last year’s worst performing asset class 1,3 |
$200,000 | $454,079 | 7.29% |
| 3. Asset Allocation Investing consistently across several asset classes 1,4 |
$200,000 | $584,983 | 9.39% |
Indexes are unmanaged; one cannot invest directly in an index. This illustration assumes that indexes are reasonable representations of asset classes and their returns. However, investment manager performance relative to the different asset class indexes has varied widely during the past 20 years.
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