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Results from the Past Decade

As we discussed a few months back, much has been made about the "Lost Decade" of investing. With the data available for all of 2009, I wanted to take another look to see if the decade was really lost. Here are the returns for the decade through last year.

U.S. Asset Classes

  • Large-cap -- -1.0 percent
  • Large-cap value -- 2.5 percent
  • Small-cap -- 3.5 percent
  • Small-cap value -- 8.3 percent
  • Real estate -- 10.7 percent
International Asset Classes
  • Large-cap -- 1.2 percent
  • Large-cap value -- 3.5 percent
  • Small-cap -- 4.3 percent
  • Small-cap value* -- 11.6 percent
  • Emerging markets large-cap -- 9.8 percent
  • Emerging markets small-cap -- 10.9 percent
  • Emerging markets value -- 12.1 percent
* International small-cap value is represented by the Dimensional Fund Advisors' small-cap value index.
As you can see, those who stuck to U.S. large-cap stocks may have experienced the lost decade, but for those investors who chose to diversify their holdings, the decade was not so lost. Even those who diversified across domestic asset classes benefited. For example, an equally-weighted portfolio of the five domestic funds, rebalanced annually, would have returned 5 percent per year, or about 2.5 percent above inflation. Not exactly great returns, but certainly not a lost decade.

And for those who had the wisdom to diversify internationally, the results were even better. If we assume a 50 percent domestic and 50 percent international allocation with annual rebalancing, equal weighting the five domestic equity asset classes (10 percent each) and equal weighting the five international asset classes (10 percent each, with the three emerging market funds each being allocated 3.33 percent), the return increases to 6.1 percent, or about 3.6 percent in real terms; certainly not a lost decade.