Investment Basics

One of the biggest questions that investors have is which asset class or groups of investment classes have performed the best. Most often, the top performing investments involve a fairly high degree of risk and sophistication, such as hedge funds that required minimum investments and lock-out periods, thereby putting them out of the reach of most investors.

So for regular retail investors, learning about the best investment areas is even more important. And up until recently, a lot of investors have seen bonds and emerging markets as the key over-performers available to them, even though bonds are facing pressure thanks to extremely low interest rates and emerging markets face risks given how slow the rest of the world has been to recover from this global economic slowdown. But are bonds and emerging markets the best places to invest when looking at both short and long term data?

Surprisingly, the answer is no. When looking at the best place to invest in mutual funds, according to data assembled by Morningstar, the best place to invest on a YTD basis has been Precious Metals equity funds, which have seen a YTD return of over 30%. And as for the long-term, these types of investments have proved a 22.4% rate of return for the past five years. Quite impressive, no question.

In comparison, the best returns from bonds in the short-term have come from Long Term Government bonds with a YTD return of 17.4%. The best 5-year rate of return has come Emerging Markets bonds with a return of 8.6%.

And on the Emerging Markets front, the best YTD region has been Morningstar's Pacific/Asia Ex Japan with a return of 19.1%. The best 5-year performer is Latin American Stock with a return of 20.9%. Both have negative 3-year rates of return, compared to the Precious Metals group which has a return of 9.4%

Now, it is also worth noting that precious metals have enjoyed tremendous growth in the past several years. Although their returns are attractive, they do correspond with the record-setting price of gold, silver, copper and other metals. Not coincidentally, these price increases also correspond to a US dollar that has lost value, suggesting that an improvement to the price of the dollar could hurt precious metals.

Regardless, investors who are looking at historic returns as a way to sift through their investment options should consider that future returns are never predicted by looking at past returns. Nobody can drive forward by looking in the rear-view mirror, right? So if a precious metals investment is one that makes sense for your portfolio, make sure to speak with an accredited financial professional who will help you understand the risks associated with such a specialty group.

--> Unsure about Precious Metals and Equities as a whole? Consider Balanced Funds as a responsible alternative. Find our more at the Mutual Fund Site.

With more than 17 years of financial services experience under his belt, Chris is a regular contributor to the Mutual Fund Site where Vanguard Dividend Funds and fifty other mutual funds are reviewed at length.