Our 2016 Heat Map Update

Periodically, we like to update clients about historic asset class performance. From inception, Four Peaks Wealth Management (FPWM) has stressed the importance of diversification, the only "free lunch" we know of in the investment world. We are certain that owning different kinds of investments is the best way for investors to meet their long-term investment goals. Any asset class, regardless of perceived risk, can collapse at any time, and has. By owning more than one kind of asset in your portfolio, those risks are significantly reduced.

To illustrate this point, we maintain a "Heat Map" in the form of the accompanying chart, and assign every kind of investment its own color code. We then stack their yearly returns, from the strongest down to the weakest. We believe that these market maps give average investors a visual way to see how diversification works over time.

[Press HERE or image for PDF enlargement of the heat map.]

The study of psychology administers Rorschach tests to gauge perception. When presented with a random inkblot, no two individuals are likely to see the same image. Turning to our chart depicting financial returns, the same is true. One reader, looking at it in its entirety, could conclude that risk is rewarded over the long-term, with U.S. stocks consistently performing well. Another reader, choosing to focus on a shorter period, 2008 for example, might not see it that way at all. Instead, they’d conclude that risk wasn’t rewarded and that stock investing is just too risky. Here is our perception.

Successful investing is all about time in the market, not market timing. FPWM constructs its client portfolios to create wealth over market cycles, not months or even years. While they say a picture is worth a thousand words, we think this one is an exception.  The one professional conclusion we draw is that past returns are not predictive of the future. Time after time, we see instances of major performance reversals, with asset classes going from incredible outperformers one year to incredible underperformers the next. Instead of chasing this or that "flavor of the month," we believe that investing in a global, diversified portfolio, with regular rebalancing, will deliver the highest possible returns over time, at a given level of risk. Our annual Heat Map is one of the tools we use to illustrate that point.

As a means of comparison, here is our Heat Map published in January 2015.