How Assets Classes Behave in Real Life? A Pictorial Story

Recently I received a data how much returns assets classes gave for calendar years 2004-2014 – for a ten-year gap. And this was India specific data of assets we invest, advice and deal on daily basis. I also was eager to confirm what we get to hear from fund managers and finance gurus–

• Does investment yield in short horizons?
• Why Long Term horizon is prescribed in volatile assets like Equity, Gold and Gilt?
• Are safe assets like Government Securities safe in short horizon?
• Do you expect to get similar returns from FD or Liquid funds for 5 Years or more?
• Do your returns depend on year or month you choose to invest?

Decking up the Assets (2004-2014)

Decking is used as an analytical tool, where the subjects under study are decked up in ascending order or descending order. Here I decked each asset classified by a distinct color in descending order of returns that they gave in a  particular year. The decked image looked like this:

The first thing that comes to mind is that – Asset Class have very low correlation with each other. They can move in any direction based on the factors their price is determined, without any relationship to another asset. In fact if I tabulate the correlation it comes like this:

Now a closer look at each asset class:

Equity (Large Caps & Midcaps)

Equity in its typical fashion either was on top or fishing bottom. That why to earn from equity one has to rely on time spent invested in the asset rather than time of investment.

Debt (Short Term Debt & Long Term Debt)

Typically they performed when equity funds did not like in year 2008 and 2013. Short term always had stiff competition with Bank FD, which is reasonable in a matured market.

Bank Fixed Deposits

Did not remain fixed in any year. Range for 10 year period is 5.5% to 10.3% with long lull periods of similar returns (2005 to 2007 & 2012 to 2014). When nothing works investor run for them (2013).

Government Securities

Although this asset is called “Risk-Free”, but gave very volatile returns in a range less than bank FDs.

Money Market (Call/CBLO Market)

Barring 1-2 years the range was 6%-7% without any major ups and down. Asset class that never topped means some other asset class outperformed every year. Hence you can invest here for short term and not look at fulfilling long term goals with this asset class.

Gold

Is it shiny as it looks or sounds traditionally? Because out of 10 year 3 times it gave negative returns. But as it is a fact that commodities cycles are greater than normal equity cycles, the gold rallied from 2005 to 2011 and from then it has come down. And no signs of reversal are seen in present times.

Hope you like the study done on your favorite asset classes. I have not used more words and let pictures do the talking. Do share what you feel in the comments section.