if you’re an investor one of your most important jobs is to diversify your portfolio find just the right mix of assets and you can achieve what i call “peace of mind and a piece of the action” but one size doesn’t fit everyone some investors want peace of mind above almost everything else others seem to want all the “action” they can get this spring my team at the merriman financial education foundation produced a new tool that uses a quiltlike colored chart to help investors make better decisions by comparing five simple equity strategies for every calendar year from 1928 through 2021 you can see at a glance how each of the five strategies did in relation to one other along with their returns for the year the colored boxes make it easy to comprehend a lot of information on one sheet of paper or just one computer screen here’s why this matters in 1999 after the sp 500 index spx had appreciated by 17 over 25 years many investors decided that index was all they needed to capture the gains from this roster of known and respected companies however by then many academics were teaching and i was preaching the merits of diversifying into other types of stocks asset classes with favorable longterm returns and which went up and down at different times and different rates than the sp 500 on the chart you’ll see green boxes for the sp 500 representing largecap blend stocks a mix of mostly growth stocks and some value stocks the pink boxes labeled “us4f” represent a fourfund strategy made up of equal parts of the four major us asset classes the sp 500 largecap value stocks smallcap blend stocks and smallcap value stocks in a box in the lower righthand corner of the chart you can see that this combination had a considerably higher longterm compound annual growth rate 12 than the 102 of the sp 500 perhaps the most interesting of these five strategies “us2f” and orange is a combination of two quite different asset classes the sp 500 dominated by the stocks of very large companies with popular stocks and smallcap value stocks representing small companies with relatively unknown and unpopular stocks in 67 of the 94 years in this study one or the other of these two was the best performer while the other the worst but when you put them together the combination had a considerably better longterm return than the sp 500 with much less volatility that’s how smart diversification works peace of mind along with a piece of the action here’s how i would evaluate this orange twofund strategy good in many years this did considerably better than average not so good this mix rarely resembled the reported swings in “the stock market” in many years its returns were lower than those of the sp 500 bottom line this is a good choice for investors seeking strong longterm returns as long as they understand that most of the time smallcap value stocks don’t go up and down in sync with the sp 500 let’s look at the four other strategies in this chart the sp 500 index green is the default for many people and it’s much better than actively managed funds the total us stock market index has similar longterm returns good this index is dominated by large familiar companies with good management it’s how “the stock market” is commonly referred to in the news in 36 of the 94 calendar years this was the highest performer among the five strategies not so good of the four major us asset classes this index has had the lowest longterm performance in 48 of 94 calendar years this was the weakest performer bottom line this is fine for investors willing to accept good but not exceptional longterm returns and who trust what warren buffett recommends for most investors which isn’t the same as what he does with money he manages a fourfund combination of us asset classes pink boxes includes every major part of the us stock market good over the long term this delivers quite a bit more return than the sp 500 with much less volatility not so good this strategy has almost never been the best performer bottom line i think this is an excellent choice for accumulators and retirees who want a better return than the sp 500 without much drama over the long haul the twofund value combination orange boxes of largecap value and smallcap value has outperformed everything i’ve described so far good performance pure and simple harnessing the power of stocks you can buy at bargain prices not so good value stocks go in and out of favor to get their longterm rewards you absolutely have to stick with them during long periods of underperformance bottom line this is a good choice for aggressive investors who can tolerate risk and who want to emulate the way warren buffett manages money finally smallcap value by itself “ussv” and blue focuses on the single asset class with the highest longterm performance not so good in 31 calendar years or about a third of the time smallcap value stocks were the worst performers bottom line as a standalone strategy i think this is most appropriate for investors who are saving aggressively during their early working years i think there’s something here for everyone if i were pressed to make a blanket recommendation from among these five strategies i don’t think investors are likely to go far wrong with the fourfund us portfolio pink boxes for more on the history of these five strategies check out my latest podcast paul merriman and richard buck are the authors of we’re talking millions 12 simple ways to supercharge your retirement get your free copy