- Past returns don’t predict future returns.
- Over the long term, returns revert to the mean for each asset class of investment.
- It pays to diversify (what is the difference between allocation and diversification?).
Here’s a table looking at broader asset classes rather than retail indexes – – and don’t worry about not seeing returns or labels clearly … on purpose … the point is that the colors scatter inconsistently just like throwing skittles on the table. Pick any color and you can see it moves around the chart. What happened last year is unlikely to be repeated … things change.
In other words, there is a random structure which tricks our brain into trying to find a hidden secret within the design (and trying to do that makes you miss the broader point of randomness of ALL colors)! That is NOT a prudent investment approach – regardless of what color is labeled what!