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This is a meta question about diversification, and if it truly exists for passive investors. i.e. Investors investing in 401ks, IRAs, Roths, primarily using ETFs or fund with large pool of stocks.

What, if any asset classes, acted either contrarily correlated during the crash of 2008, or were significantly less effected?

Also, over a span of fifteen years, say 2000-2015, how would a "diversified" portfolio fared vs a portfolio primary comprised of stock index ETFs?

I posed this question after reading Berkshire meetings notes where he extols the stock market, particular the US market and its bright future.

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Also, over a span of fifteen years, say 2000-2015, how would a "diversified" portfolio fared vs a portfolio primary comprised of stock index ETFs?

An interesting useful site for this is: https://dqydj.com/finance-calculators-investment-calculators-and-visualizations/#InvestmentCalculators

It contains a number of different calculators that can give you a rough rate of return (accounting for inflation and reinvestment of dividends) for a number of different returns.

According to it, from 1/1/2000 to 1/1/2016, using the S&P 500 calculator (adjusting for inflation, reinvesting dividends), an S&P 500 investment returned 29.216% over that time period, which very much underperformed A-rated corporate bonds at 69.776% - 79.708% for the same period. The S&P 500 investment even underperformed 10-year T-bills at 32.638%.

But you should note that that is a function of the window. If you extend the window from 1/1/2000 to 1/1/2018, the S&P 500 almost exactly ties the high end of the bonds. If instead you advanced the window 2 years (ie, not starting almost immediately preceding a crash), using 1/1/2002 - 1/1/2018, the S&P 500 becomes a clear winner at 140.367% vs the bonds' 50.598% - 61.324%. If you expand the window to 1/1/1989 (roughly the earliest date the site has bond data for) to 1/1/2018, the S&P 500 becomes 783.196% to the bonds' 185.206% - 209.755%.

This is why equities (and index funds in particular) are recommended as long term, not short term, investments.

For your specific question about an index-only vs a diversified portfolio, in the 1/1/2000 - 1/1/2016 window, the diversified portfolio would outperform because of its bond holdings; for 1/1/2000 - 1/1/2018, it would be equivalent, and for the other windows it would underperform. But the point of a diversified portfolio is not to maximize gains, it is to minimize risk, which becomes more and more useful the closer you get to actually withdrawing your investment.

  • I bet if you extended the window back to 1/1/1998 (in the middle of the dot com bubble) the S&P500 would look even better. – RonJohn Aug 21 '18 at 14:09
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Long-term Treasury bonds rose during the crash of 2008.

  • This is expected behavior. Bonds are common destination for money pulled from declining market. And a common hedge against sudden market drops. – Xalorous Aug 21 '18 at 13:53
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In terms of equities, all sectors were spanked in 2008 with financials getting hit the hardest, down over 50%. Defensive sectors fared much better with Consumer Staples down 16% and Utilities down 29%. Transportation stocks were down 21%. All other major SPDR sectors were down between 30% and 50%.

Stocks that performed well within a sector (up for the year) either had an edge over their competitors (for example, banks with lack of exposure to sub prime) or they had a special story (new products or technology, successful clinical trials for new drugs, etc.).

An oft repeated statement on the web is that gold does well in a recession. Sometimes it does and sometimes not. It's iffy. In 2008, GLD was up nearly 5% but during the year it had nearly a 35% draw down before recovering.

The place to be in a 2000 or 2008 bear market is short :->)

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    A positive spin for the vertically challenged. 😂 – Peter K. Aug 20 '18 at 17:16
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What, if any asset classes, acted either contrarily correlated during the crash of 2008, or were significantly less effected?

Bonds were less affected in 2008. For example, VWEHX (a junk bond fund) only fell 25%, and recovered within a year, while VFIAX (S&P 500) fell 40% and took 2.5 years to recover.

(And, of course, CDs weren't affected at all.)

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2008 was the housing subprime mortgages bubble. The word mortgage being associated with real estate dragged down all real estate, even that which was not involved with the bad mortgages. The sudden glut of properties selling below previous market value lowered the values of property in general. REITs deal in land for commercial development. They should have weathered this storm, but were depressed through being conflated with the housing market, and damaged as a secondary effect of the housing market value adjustment.

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https://www.portfoliovisualizer.com/historical-asset-class-returns

The above link shows all asset classes per year spanning several decades. Includes REITs, commodities, and Treasury Notes, as well as 'break-out' of stock class and type.

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