Scatter chart compares hypothetical standard deviation and hypothetical geometric expected return for hypothetical diversified allocations with 0%, 2%, and 5% commodities.
Y-axis: Hypothetical geometric expected return; X-axis: Hypothetical standard deviation
In nine scenarios ranging from conservative income to aggressive growth, inclusion of commodities even at low percentages reduces the standard deviation without significantly compromising expected return.
For example, a hypothetical moderate growth and income portfolio with 0% commodities with a hypothetical geometric expected return of 6.14% has a standard deviation of 10.15. The same portfolio with 2% commodities has the same hypothetical return of 6.14% and a reduced standard deviation of 10.1%. And with 5% commodities the return is a slightly reduced 6.12% and a reduced standard deviation of 9.83%.
Source: Wells Fargo Investment Institute, as of March 31, 2022. Forecasts are not guaranteed and are subject to change. Strategic hypothetical returns are forward-looking geometric return estimates from Wells Fargo Investment Institute of how asset classes and combinations of classes may respond during various market environments. Hypothetical returns do not represent the returns that an investor should expect in any particular year. They are not designed to predict actual performance and may differ greatly from actual performance. There are no assurances that any estimates given will be achieved. See “Index Definitions and Asset Class Risk Disclosures” link above for the composition of the hypothetical allocations. The allocations to commodities are added to or removed from the U.S. Large Cap (S&P 500 Index) allocation to arrive at a 0%, 2%, or 5% commodities allocation.
- We believe Commodities can help mitigate risk in a diversified allocation, even if the allocation is small.
- Because of its low correlation with stocks and bonds, we believe including an allocation to Commodities in a diversified portfolio should help reduce expected volatility without sacrificing return.