Asset class returns

The chart below represents capital market returns for the calendar year 2011.  Where would you have put new money on January 2, 2012?

Often, investors project past performance forward and avoid the asset classes with recent negative returns.  As it turns out, January would have been a great month to rebalance, i.e. sell asset classes with the best returns and buy asset classes with the worst, as the performance of the first two months of 2012 show.  The worst became the best:

While capital markets returns in the short term are unpredictable, periodic rebalancing a portfolio back to targeted weights acts as a disciplined, unemotional strategy to help buy low and sell high.  Since no one knows what asset classes will perform the best and when, periodically rebalancing a portfolio at set intervals—monthly, quarterly, semi-annually, or annually—is an institutional practice that makes sense for individuals as well.  --D. Crosby, CFA, CFP©

*Data source: Interactive Data.  Indices in order: S&P 500, Russell 2000, Dow Jones U.S. REIT, MSCI Developed EAFE, MSCI EAFE Small Cap, MSCI Emerging Markets, Barclays Intermediate Government, U.S. Treasury Bills.