Diversification And The Mean Reversion Principle
Investments can have wide price swings during any given year. But, over time, they usually revert to their long-term averages. This principle is called “mean reversion.”
“Investors who embrace broad diversification understand that there will be market environments where it looks good and other environments where it looks bad.”
—Roger Gibson, Author of Asset Allocation: Balancing Financial Risk
The chart below demonstrates the fluctuation of asset classes for the past 9 years. As you can see, not one investment category has performed consistently over the 9-year period. By allocating your assets among a variety of categories, and understanding mean reversion, you protect yourself from unpredictable shifts in the market.
| 1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
Diversified Emerging Markets
70.75% |
Natural Resources
29.98% |
Precious Metals
18.74% |
Precious Metals
62.72% |
Precious Metals
57.92% |
Natural Resources
28.02% |
Natural Resources
40.16% |
Pacific/Asia ex-Japan
46.05% |
Pacific/Asia ex-Japan
46.37% |
Pacific/Asia ex-Japan
69.86% |
Muni
Interm
9.56% |
Muni
Short Term
4.80% |
Muni Interm
8.50% |
Diversified Emerging Markets
55.57% |
Diversified Emerging Markets
23.37% |
Diversified Emerging Markets
31.46% |
Diversified Emerging Markets
32.00% |
Natural Resources
34.98% |
Mid-Cap Growth
61.61% |
Muni Short Term
5.78% |
Muni Interm
4.36% |
Muni Short Term
5.02% |
Pacific/Asia ex-Japan
54.13% |
Foreign Stock
19.62% |
Precious Metals
30.61% |
Precious Metals
31.51% |
Diversified Emerging Markets
34.17% |
Small
Growth
60.37% |
Money
Market Gov.
5.76% |
Money
Market Gov.
3.63% |
Money
Market Gov.
1.27% |
Small
Growth
46.52% |
Mid-Cap Growth
13.96% |
Pacific/Asia ex-Japan
17.19% |
Foreign Stock
26.01% |
Precious Metals
23.22% |
Foreign Stock
45.80% |
Mid-Cap Growth
-2.67% |
Diversified Emerging Markets
-2.19% |
Natural Resources
-2.48% |
Foriegn Stocks
38.88% |
Pacific/Asia ex-Japan
13.56% |
Foreign Stock
16.59% |
Natural Resources
12.72% |
Mid-Cap Growth
15.04% |
Large
Growth
38.34% |
Small
Growth
-4.10% |
Pacific/Asia ex-Japan
-3.32% |
Diversified Emerging Markets
-5.16% |
Mid-Cap Growth
36.12% |
Small
Growth
12.40% |
Mid-Cap Growth
10.01% |
Small
Growth
10.66% |
Large
Growth
13.31% |
Natural Resources
30.50% |
Large
Growth
-10.56% |
Small
Growth
-8.11% |
Pacific/Asia ex-Japan
-9.91% |
Natural Resources
30.53% |
Large
Growth
8.51% |
Large
Growth
7.09% |
Mid-Cap Growth
9.21% |
Foreign Stock
12.97% |
Precious Metals
6.63% |
Foriegn Stocks
-14.15% |
Natural Resources
-12.67% |
Foriegn Stocks
-14.83% |
Large Cap Growth
29.45% |
Muni Interm
2.92% |
Small
Growth
6.19% |
Large
Growth
7.36% |
Small
Growth
7.59% |
Money
Market Gov.
4.59% |
Precious Metals
-16.53% |
Mid-Cap Growth
-16.74% |
Mid-Cap Growth
-25.45% |
Muni Interm
4.17% |
Muni Short Term
1.17% |
Money
Market Gov.
2.65% |
Money
Market Gov.
4.46% |
Money
Market Gov.
4.64% |
Muni Short Term
0.66% |
Pacific/Asia ex-Japan
-22.88% |
Foreign Stock
-19.51% |
Large
Growth
-26.57% |
Muni Short Term
2.38% |
Money
Market Gov.
0.81% |
Muni Interm
1.93% |
Muni Interm
3.66% |
Muni Short
3.32% |
Muni Interm
-2.43% |
Diversified Emerging Markets
-28.95% |
Large Cap Growth
-19.79% |
Small
Growth
-28.05% |
Money
Market Gov.
0.63% |
Precious Metals
-8.25% |
Muni Short Term
1.20% |
Muni Short Term
2.96% |
Muni Interm
2.71% |
Source: Steele & U.S. Global Investors Research |
Please consider carefully the fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.
Diversification does not protect an investor from market risks and does not assure a profit. |
Investment Professionals 