Quiz Yourself On These Investment Facts

Whenever we enter a new year we hear a lot of performance numbers and predictions. Here is a very short quiz to give you some facts to discuss with your friends.

1) Which of the following investment types (asset classes) performed the best in 2015? Which performed the worst?

a. U.S. large company stocks

b. U.S. small company stocks

c. International large company stocks

d. Emerging market stocks (includes China)

e. U.S. real estate investment trusts (REITS)

f. U.S. bonds

2) Fixed-income sectors include municipal bonds, emerging market debt, Treasury bonds and U.S. high-yield bonds. Which sector yielded the best return in 2015?

3) The U.S. stock market, as measured by the S&P 500 index, fell to 677 on March 9, 2009. On that day the S&P 500 forward-looking price-to-earnings ratio was 10.3. At the end of 2015, the S&P 500 was at 2044, up 202 percent. What was the S&P 500’s forward-looking price-to-earnings ratio at the end of 2015 and how does it compare to the average P/E ratio over the past 25 years?

4) What do you think interest rates will do in 2016 and what should bond-holders watch out for?


1) None of the asset classes performed well in 2015. The best performing asset class of those listed was REITS, which gained 2.8 percent for the year as measured by the NAREIT Equity REIT Index. U.S. large company stocks were next — the S&P 500 was up 1.4 percent (dividends included). Bonds followed, with the Barclays Aggregate up 0.5 percent. International large company stocks in the MSCI EAFE index were down -0.4 percent and U.S. small company stocks in the Russell 2000 index were down -4.4 percent, emerging markets stocks in the MSCI EME Index were down -14.6 percent.

2) Municipal bonds, as measured by the Barclay’s 10-year Muni Bond Index, came in first with a return of 3.8 percent. Next, in order, were emerging market debt (Barclays Emerging Debt USD was up 1.2 percent), Treasury bonds (Barclays U.S. Treasury Index was up 0.8 percent), and U.S. high-yield (U.S. corporate high-yield index was down -4.5 percent).

3) The forward-looking P/E ratio for the S&P 500 at the end of 2015 was 16.1, which is very close to the average forward-looking P/E ratio for the S&P 500 over the past 25 years of 15.8.

4) The general consensus is that the Federal Reserve will continue to raise interest rates in 2016. By how much is in question. They could raise them by 0.25 percent per quarter, or every other quarter. This could mean that short-term U.S. treasury bill rates that are now around 0.24 percent will be closer to 1.0 percent by the end of the year. Rising interest rates mean lower bond prices, especially for longer-term bonds. Wise investors know that predicting interest rate changes is an impossible task, so they are reducing their interest-rate risk by cutting back on their exposure to long-term bonds.

The takeaway from all this data is to be diversified. Nobody can predict future stock and bond prices or know ahead of time which asset classes will go up and which will go down. Diversification is a wise way to reduce your portfolio risk.


Kenneth B. Petersen is an investment adviser and principal of Monterey Private Wealth Inc. in Monterey. Send questions concerning investing, taxes, retirement or estate planning to 2340 Garden Road, Suite 202, Monterey 93940 or ken@montereypw.com.