The periodic table of investments is a quick picture of how different asset classes performed year over year. Started by the Callan Institute, as early as the end of the 1990s, the periodic method of comparing asset classes gained widespread expectation as an important way of visualizing how different asset classes rank against each other. In addition, several asset managers / fund companies use the periodic table form factor to place their asset allocations among asset classes to whom they measured against broader indices.
You have probably come across investment literature that used the periodic table at one time or another. For those unfamiliar with the table, here is an example from Callan, the company that pioneered the concept:
The table shows how several asset classes performed each year for 20 years. The best performing asset classes are shown at the top of the column each year, while the worst performing assets are shown at the bottom. When we look at the table, we think that we can make some important observations:
- Several asset classes experience quite extreme volatility from year to year. This seems especially true for Emerging Markets and Developing Equity.
- Asset classes with lower risk tend to be less volatile, and their movement from the top to the bottom of the annual column comes more from extreme movements in more risky assets
- Despite its relative risk and volatility, US stocks in Large Cap remain fairly stable with respect to their positioning / ranking within the various asset class alternatives.
But from experience I know that what I think I understand through quick observation can be wrong. So to help understand the volatility of these asset classes, I ranked their standard deviations. By doing so we get the following results:
|Capital class||Standard deviation|
|Development of capital||21.18%|
|Small Cap Equity||19.83%|
|Large Cap Equity||18.07%|
|Global Fixed Income||8.26%|
|US Fixed Income||3.43 %|
If we look at this way, we see that properties end up as the most volatile. Although Large Cap Equities typically use the middle of the road rankings year over year, which does not go too far from previous years' rankings in most cases, it still ends up much more as its more risky counterparts than its alternative classes with lower risk.  I want to note that I dropped Emerging Markets from this analysis because I only had 19 years of observations. While it can be argued that this fewer observations probably does not change the results that much, it is still an example of poor data control and an unfair comparison.
How does historical asset class returns compare with Whole Life Insurance?
Using data from the periodic table of investment returns, we can calculate an effective compound annual growth rate for a hypothetical investment in the different classes. We simply use the annual return and connect it as a value for an assumed return at the investment level, calculate the final balance for which systematic investment we want to assume, and then calculate the geometric return. For a step-by-step guide on how to do this, see Predictable Profits .
We can use values derived from each asset class and compare them with what we know throughout life insurance achieved over the last 20 years. This is how it breaks down:
There is not much surprise here. Shares remain at the top while interest rates flow from outside. Whole life insurance is an interest asset, so it falls into that category and does not rival stocks in terms of gross returns.
Again, I dropped Emerging Markets from the analysis because I do not have a full 20 years of observations. In addition, I removed cash from the above ranking because my chosen formatting needed an even number of asset classes. For those interested, cash eventually came in at an effective CAGR of 1.31%.
There are some important observations that I think are well worth noting.
Periodic Return on Investment with Whole Life Insurance Observations
First, despite its high volatility, real estate ranks third on the list. As an asset class, it's a little difficult to get on board (in my opinion) to know that it is more volatile than both US Small and Large Cap stocks and has performed quite significantly worse over the past 20 years.
Second, the old sentiment about High Yield Bonds seems to be confirmed by these data; the category functions much more as equities than debt / interest-bearing securities. Volatility is significantly higher than other interest-bearing assets, but it gives a higher return in this analysis by a fairly wide margin. Still, it is difficult to justify it given the return and volatility profile of Large Cap Equities.
Whole Life Insurance performs very close to US interest income. We foresaw this. But note that it worked best among all fixed income options (ignore high returns because high returns work differently than traditional fixed income investments). Keep in mind that whole life insurance as a fixed income-like asset offers superlative main security and liquidity.
Calculating the standard deviation of the lifetime return to compare with the table above is a bit difficult because I do not have the same detailed data that I used in the periodic table. But from previous analyzes we performed on this topic, we know that the entire life insurance dividend (the only component that drives variation) is extremely low. Less than 1% was low, which places the entire life insurance in a volatility category under cash and cash equivalents.
None of these estimated return factors in investment management fees (likely to make any significant difference in the result) or taxes (potentially likely to make a moderate change in results).
The entire life insurance is a low risk asset and it achieves a return in proportion to its overall risk profile. It actually achieves returns that are quite good given its risk profile. This does not make it the best available asset. Nor does it make it the only asset you will ever own. But it really deserves to be taken into account when building a well-rounded portfolio. It can complement more aggressive access options to help curb volatile markets. In the end, it is an asset class with a strong and incredibly stable return.