Interesting data on asset class risk vs reward

In our last blog post we looked at portfolio allocation and how you can model your portfolio like the ultra wealthy. Today we’re going to drill down into the risk vs reward of investing, with data on common investment asset classes.

Investing is fundamentally about balancing risk and reward. At its core, the concept revolves around the trade-off between the potential for higher returns and the likelihood of experiencing losses.

High-risk investments, such as stocks or venture capital, often offer the possibility of substantial gains but come with increased volatility and uncertainty. Conversely, low-risk investments, like government bonds or savings accounts, typically provide more stable returns but with limited growth potential.

The next chart shows the annualized total return vs annualized risk for common asset classes over a 20 year period.

Here are the key takeaways on risk and volatility:

  1. TREASURY BONDS – Low risk, but low returns. You will not change your lifestyle or create generational wealth with treasury bonds. Heck, you may not even keep up with inflation.
  2. COMMERCIAL BONDS – Corporate bonds have higher returns than treasury bonds, but risk jumps up as well.
  3. EQUITIES – High risk and high returns. High volatility is common, with wild gyrations from year to year, such as up 29% one year and down 21% another.
  4. COMMODITIES – The highest risk and the lowest returns. Enough said.
  5. REAL ESTATE – Only government bonds have lower risk (just slightly), yet real estate has the highest annualized returns.

From an asset class comparison perspective, clearly real estate enjoys very high annual returns with very low annualized risk, just what we want over the long haul as an investor.

At Saint Investment, we use a strategic top-down approach to identify the best investment asset classes based on macro-economic conditions. We purchase the highest quality and most dependable assets that we know will be the most consistent for our investors.

We currently love the exceptional risk-adjusted return potential of residential mortgage notes. Explore the Saint Income Fund and discover how this smart investment can provide up to 14.28% compounded returns, or 12% annual returns with monthly distributions.

Bottom Line

Take a minute to look at your own portfolio… are you taking on too much risk for the returns you are getting? Of course you want to invest in assets that have higher returns, but not if the risk outweighs the benefit.