In 1997 and 1998, emerging markets and commodities crumbled. But the pain was offset by gains in U.S. and foreign developed markets stocks. Bonds did well in those two years too.
During the great bear market of 2000-2002, stocks in general were bleeding. REITs offered a rare exception, posting tidy gains in those otherwise dark three years for the stock market. Another bright spot in 2000-2002: In two of the three years, commodities posted solid gains and bonds did well too.
Diversification, in short, has proven its worth in the recent past. The question is whether the strategy of owning a broad mix of asset classes will continue to impress? We pose the question because the recent past has witnessed an extraordinary rise in, well, everything. Starting in 2003, most of the broad asset classes have enjoyed gains for each and every calendar year. Yes, there have been some exceptions and a fair amount of variation within the asset classes. There are enough indices out there to prove (or disprove) whatever you want in money management. But by our reckoning, bull markets have more or less prevailed across the board for the past three years.