Diversification and the Impact of Income

A key tenet of successful investing is to remain invested and diversified so that your portfolio may benefit from the unpredictable nature of the market. However, how are these returns impacted by an investor's need for income?

This chart tells a familiar story about the benefits of diversification and asset allocation, but the lesson remains important. Trying to pick the “winning” asset class every year is nearly impossible. A key tenet of successful investing is to remain invested and diversified so that your portfolio may benefit from the unpredictable nature of the market.

Asset class returns for the last 20 years

  • Cash (Cash)—BofA Merrill Lynch U.S. Treasury Bill Index (0-3M) (USD Unhedged): The index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all of income.
  • U.S. Bonds (US Agg)—The Barclays U.S. Aggregate Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.
  • Tax-Exempt U.S. Bonds (Munis)—The Barclays U.S. Municipal Bond Index is a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed tax exempt bond market. The index includes state and local general obligation, revenue, insured, and prerefunded bonds.
  • Large Cap U.S. Stocks (US LC)—The S&P 500 Index is a capitalization-weighted index of 500 stocks.
  • Small Cap U.S. Stocks (US SC)—Russell 2000® Index measures the performance of the 2,000 largest companies in the Russell 3000® Index, which represents approximately 90% of the total market capitalization of the Russell 3000® Index.
  • Commodities (Comm)—Bloomberg Commodity Index is composed of futures contracts on physical commodities. The Index is calculated on an excess return basis and reflects commodity futures price movements.
  • International Stocks (Intl Stock)—The MSCI World ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets countries—excluding the United States. With 1,021 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
  • Emerging Markets (EM)—The MSCI Emerging Markets Index is a free float-adjusted marke capitalization index that is designed to measure equity market performance of emerging markets. The Index consisted of the following 23 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
  • Real Estate (REITs)—The Dow Jones U.S. Select REIT Index intends to measure the performance of publicly traded REITs and REIT-like securities. The index is a subset of the Dow Jones U.S. Select Real Estate Securities Index (RESI), which represents equity real estate investment trusts (REITs) and real estate operating companies (REOCs) traded in the U.S.
  • Diversified Portfolio (Div Port)—US Agg 30%, Munis 5%, Comm 5%, REITs 5%, Cash 5%, EM 5%, Intl Stock 15%, US SC 10% and US LC 20%.

Diversification and the Impact of Income

How are those returns impacted by the need for income?
Growth of $100,000 over the last 20 years, withdrawing 4% every year

Asset class analysis (1996-2016)

The above is a hypothetical example shown for illustrative purposes only. It does not reflect the impact of taxes or inflation.
See page one for representative indices.
The performance shown is not indicative of the performance of any mutual fund or other investment product.
Standard Deviation: A measure of risk; it calculates the variability of returns by comparing the Fund’s return in each
period from the average Fund return across all periods.
Diversification does not guarantee a profit or protect against a loss in declining markets. All investments are subject to
risk including possible loss of principal.
Investments in debt securities are subject to credit and interest rate risk. An increase in interest rates typically causes
the value of bonds and other fixed income securities to fall. Factors unique to the municipal bond market may negatively
affect the value in municipal bonds.
Investments in international securities are subject to certain risks of overseas investing including currency fluctuations
and changes in political and economic conditions, which could result in significant market fluctuations. These risks are
magnified in emerging markets.
Investments in small-capitalization companies are subject to greater price volatility, lower trading volume, and less
liquidity than investing in larger, more established companies.
Real estate investments are subject to factors such as changing general and local economic, financial, competitive and
environmental conditions.
The S&P 500 Index is proprietary data of Standard & Poor’s, a division of McGraw-Hill Companies, Inc. All rights reserved.
The indices shown on page one are unmanaged, are not available for investment and do not incur expenses.
AMG Distributors, Inc., member of FINRA/SIPC.

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