This chart compares the returns of a hypothetical portfolio of 80% U.S. stocks and 20% international stocks with the returns of an all-U.S. portfolio over rolling five-year holding periods from 1996 through 2009.
The bars on the right side of the time line show the average annual total return for each five-year holding period ended on that date. The blue bars represent the internationally diversified portfolio while the tan bars represent the all-U.S. stock portfolio. For example, over the five-year period ended in 2009, the internationally diversified portfolio earned a return of 1.19% while the all-U.S. portfolio returned 0.42%.
Left of the time line appears each portfolio’s standard deviation, which measures the volatility, or degree of fluctuation, in the returns. The higher the standard deviation, the greater the volatility.
For instance, a standard deviation of 24.10 for an all-U.S. stock portfolio for the five-year period ended 2009 means that the return fluctuated up to 24.10 points above or below the average five-year return of 0.42%. This is compared with the modestly higher standard deviation of 25.26 for the internationally diversified portfolio.
An 80% U.S./20% foreign mix is highlighted because it represents a typical investor's exposure to international equities. Keep in mind, however, that the optimal allocation will vary depending on the time and length of the period examined. The period chosen reflects 20 years of data from the S&P 500 Stock Index. We chose five-year holding periods to reflect a minimum investment horizon.
Note: This chart is shown for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results. It is not possible to invest directly in an index.
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