Lecture 2: Lab
Tracking returns on major asset classes over time
1 Returns on Major Asset Classes
Download the asset_class_returns.xlsx file (details on the contents are in the table below).
- Track the value over time of a $1000 investment (made at the beginning of the sample) in each of the asset classes included in the file.
- Plot these time-series in a single graph.
| Column Name | Data |
|---|---|
| sp500 | Annual returns on S&P 500 (includes dividends) |
| smallcap | Annual returns on US Small cap firms (bottom 10% by market cap) |
| tbill | Average 3-month T.Bill rate per year |
| tbond10 | Annual returns on US T. Bonds (10-year) |
| cbonds_baa | Annual returns on Baa-rated corporate bonds |
| real_estate | Average annual price appreciation in residential real estate |
| gold | Annual percentage change in gold prices |
| inflation | Annual percentage change in CPI |
2 ETFs Tracking Major Asset Classes
Download the etf_returns.xlsx file (details on the contents are in the table below).
- Track the value over time of a $1000 investment (made at the beginning of the sample) in each of the following ETFs: BIL, IEF, HYG, SPY, IWM, GLD, VNQ.
- Plot these time-series in a single graph.
| Asset Class | Ticker | ETF Name | Why investors use it |
|---|---|---|---|
| Cash equivalents | BIL | SPDR Bloomberg 1–3 Month T-Bill ETF | Proxy for the risk-free rate; parking cash with minimal interest-rate risk |
| Nominal Treasuries (medium-term) | IEF | iShares 7–10 Year Treasury Bond ETF | Benchmark intermediate-duration interest-rate exposure |
| Nominal Treasuries (long-term) | TLT | iShares 20+ Year Treasury Bond ETF | High-duration exposure; hedge against recessions and equity crashes |
| Inflation-linked bonds | TIP | iShares TIPS Bond ETF | Protection against unexpected inflation; real return benchmark |
| Investment-grade corporate bonds | LQD | iShares Investment Grade Corporate Bond ETF | Corporate credit exposure with relatively low default risk |
| High-yield corporate bonds | HYG | iShares High Yield Corporate Bond ETF | Exposure to credit risk and business-cycle sensitivity |
| U.S. stocks (total market) | VTI | Vanguard Total Stock Market ETF | Broad exposure to the entire U.S. equity market |
| U.S. stocks (large-cap) | SPY | SPDR S&P 500 ETF Trust | Core U.S. equity benchmark; market portfolio proxy |
| U.S. stocks (small-cap) | IWM | iShares Russell 2000 ETF | Small-cap risk and growth exposure |
| International stocks (developed) | VEA | Vanguard FTSE Developed Markets ETF | Geographic diversification beyond the U.S. |
| International stocks (emerging) | EEM | iShares MSCI Emerging Markets ETF | Higher growth potential with political and currency risk |
| Gold | GLD | SPDR Gold Shares | Inflation hedge, crisis hedge, and store of value |
| Real estate | VNQ | Vanguard Real Estate ETF | Exposure to publicly traded real estate (REITs) |
| Broad commodities | DBC | Invesco DB Commodity Index Tracking Fund | Inflation-sensitive exposure to energy, metals, and agriculture |