**The Two Test Portfolios**

The two portfolios chosen below are based more on the asset classes for which we have historical returns over the full 1970-2017 period, and not necessarily on index funds available to investors at the time (which means using some backdated data). The simple 60/40 portfolio includes broad-market U.S. stocks and bonds, while the multi-asset 60/40 portfolio adds some riskier assets on the equity side plus credit and term risk on the bond side (list below).

**Outperformance Over Time**

Clearly, whether choosing a simple or a multi-asset portfolio, one needs to be prepared for "tracking error" between the two. Over the 1970-2017 period, the simple portfolio outperformed at times (in green, usually when large growth stocks dominated), and in other stretches the multi-asset mix won out (chart below).

Data source: Simba spreadsheet, rev. 17b

**Risk and Return**

Over the full 48-year period, the extra risk of the multi-asset portfolio was clearly rewarded (table below). Not only was the geometric return higher by 0.43% per year, but the standard deviation of returns was lower, leading to a higher Sharpe ratio.

**DISCUSSION:**Theoretically, over an investor's long career, a multi-asset portfolio of risky assets with less than perfect correlations should marginally outperform with less volatility. My big concern for the future, however, is that as the number of public companies declines, and the fewer large remaining firms grow in size and profitability due to increasing globalization, the simple portfolio may prove harder and harder to beat.

Your thoughts?