Despite this week’s turbulence on the stock markets, savers are expected to pour hundreds of millions of pounds into Isa investment funds before the end of the tax year on April 5.
Before they choose their funds they might want to know how different types of investment have performed over the past decade, which has seen a series of severe financial crises.
The chart shows how 10 different assets have performed each year since 2006. We also look at a “mixed portfolio” of 45pc in shares, 45pc in bonds, 5pc in commodities and 5pc in cash.
The returns stated are “nominal”, so they take no account of inflation.
As the chart shows, every asset apart from commodities has generated a positive return over the past decade. The worst performer of the assets that avoided losses was cash.
But there have been some big swings along the way, with the top performers all too often ending up at the opposite end of the table the following year. Even commodities featured twice in the top two spots.
Emerging-market shares have given investors a roller-coaster ride: they topped the table in 2006, 2007 and 2009 but left investors nursing big losses in 2008 and 2011. Overall, however, patient investors have been rewarded, with annualised returns of 6.4pc over the period (as the chart to the left shows).
This puts emerging-market shares in fourth place overall, behind emerging-market bonds (6.7pc), junk bonds and American shares (both 7.3pc).
Commodities are bottom of the pile, losing 6.4pc on an annualised basis. Over the past five years pretty much every commodity, from iron ore to copper, has seen its price plummet, largely as a result of China’s economic slowdown.
The lessons learnt
The chart highlights the value of a balanced investment approach, evidenced by the mixed portfolio producing steady returns, in the middle of the table, most years.
A spread of different types of investment gives your portfolio ample opportunity to grow, while guarding against serious losses.
Russ Mould of AJ Bell, the investment shop, said: “The chart warns against following the latest fads and fashions and reasserts the importance of diversification, because it is impossible to pick each and every winner year in year out.”
The chart also shows that trying to time the markets is hard work and fraught with danger.
Mike Bell, a global market strategist at JP Morgan Asset Management, which supplied the chart, said this was particularly pertinent in the current climate, with global stock markets recording big losses since the turn of the year.
Only cash (with gains of 0.1pc), investment-grade corporate bonds (1.2pc) and government bonds (4pc) are in positive territory so far in 2016.
“It can be difficult to keep a cool head when the markets are falling but, as history shows, it pays to be patient instead of panicking,” Mr Bell said.
According to Tom Becket of Psigma, the fund manager, the chart also offers clues as to where investors should consider putting their money this year.
“After the poor performance over the past few years, it would make sense for investors to re-examine opportunities in the commodity and emerging-market asset classes,” he said.
“Both have performed poorly but the disconnect between the prices of those assets and other global assets has expanded to very wide levels and the research here shows that ultimately the laggards become leaders and the leaders become laggards.
“I feel strongly that there is a fair chance of that happening in the years ahead, not least because no one expects it.”
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