First Quarter 2015 Returns: Our 6 Asset Classes

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Each quarter brings a different set of returns for each asset class and subcategory. And the bonus for rebalancing is a product of low correlation between categories and high volatility. The rebalancing bonus is one case where volatility is a friend to diversification and can help boost returns for those who are regularly rebalancing.

The first quarter of 2015 found foreign stocks boasting the best returns as Europe recovered some of the valuations lost during 2014. Germany (as represented by iShares Germany (EWG)) had one of the best returns at +8.19% for the quarter. This is good since Germany lost 10.49% during 2014.

But perhaps the best return was from Japan as iShares Japan (EWJ) appreciated 10.20% during the first quarter. At the end of 2014, EWJ’s 10-year average annualized return was only 1.76%. Despite Japan’s stellar performance for one quarter, we don’t recommend overweighting Japan going forward. Japan currently ranks 20th in economic freedom in the middle of the “mostly free” category. This is an improvement, but Japan’s debt, deficit, and high corporate tax rate do not make it an attractive place to invest at present.

First Quarter 2015 Returns: Our 6 Asset Classes

Foreign Bonds, as represented by iShares International Treasury Bond (IGOV), lost 5.07%. Some of the foreign bond funds we recommend performed much better against this measurement as can be seen here:

Foreign Bonds Q1 2015

As the dollar has become more volatile, swings in the value of a dollar have made foreign bonds more volatile as measured in US dollars. It is interesting to me that emerging market bonds (e.g. PEBIX) have held their value better than the index which contains more of the countries high in debt and deficit.

Although iShares Germany (EWG) stocks did well (something we invest in), German bonds did not (something we don’t invest in) – ProShares German Sovereign/Sub-Sovereign ETF (GGOV) lost 10.86% over the first quarter.

Asset allocation means always having something to complain about. But it also means always having a decent return which can compound on last quarter’s decent return. Over time we think that is a strategy which gives you the best chance of meeting your goals. We’d rather come in the top twelve among the down hill skiers in the Olympics than try for gold and risk breaking every bone in our body. As a result we have a saying: “It is always a good time to have a balanced portfolio.” And another saying: “Don’t let the latest short-term returns ruin a brilliant long-term investment strategy.”

As always, both the authors and the clients we manage often invest in the investments mentioned in these articles.

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Wealth Manager

Austin Fey is a Wealth Manager at Marotta Wealth Management, specializing in charitable giving and asset allocations. She is a regular contributor to our Marotta On Money articles, often giving advice to those just getting started in finance.

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President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.