I encourage you to give this DFA article a read. The answers to the article’s nine questions for the long-term investor are at the foundation of our investment philosophy, a philosophy which guides the construction, investment selection and ongoing monitoring of your retirement portfolio. You can read our investment philosophy here.
AS GOES JANUARY, SO GOES THE MARKET, RIGHT?
Some Wall Street pundits and stock market investors like to have a catchy saying to offer a sort of predictive power and a guide to how and when to invest. “Sell in May and go away” implies to get out of the stock market in May and take the summer off only to jump back in after the summer vacation is over.
With the New Year here, how does “As January goes, so goes the year” hold up to predicting how the rest of the year’s stock market returns will be based upon the return of the stock market in January? The suggestion is that if the stock market has a negative return in January then we’re in for a negative return year.
The data in this article shows the monthly returns of the S&P 500 Index for each January since 1926, compared to the subsequent 11-month return (February – December). A negative return in January was followed by a positive 11-month return about 60% of the time, with an average return during those 11 months of around 7%.
Conclusion: the long-term health of our retirement portfolio should not be predicated on the whether the first month (or any month for that matter) is good or bad. From the article: “We should remember that frequent changes to an investment strategy can hurt performance. Rather than trying to bear the market based on hunches, headlines, or indicators, investors who remain disciplined can let markets work for them over time.”
DIVERSIFICATION
Investors tend to think ‘invest in what we know.’ I think there’s something to be said for understanding what we are investing in, however, the issue is we might concentrate our investments in U.S. stocks because we know companies like Amazon, Walgreens, and IBM and we’re comfortable with them; while we’re hesitant of investing our money in a foreign company who’s name we can’t pronounce. This is known as “home-country bias” and it’s not just observed here in the U.S. with American companies, it’s observed across countries around the world.
I pulled out the first table from this DFA article (however, because of its size it’s probably best viewed in the attached PDF). A neat thing to do is to focus on one color and see how it jumps around year after year – this is the returns for a specific country every year going back to 1997. The light blue of USA and the dark blue of Switzerland are two easy colors to follow. 13 of these 21 developed countries had the best performing stock market in a given year, and no country was the best performer for more than two consecutive years.
It’s difficult to know which markets will outperform from year to year, so by holding a globally diversified portfolio (which we do) we are well positioned to capture returns wherever they occur – we get the good with the bad, but over the long-term we get a lot more good than bad and that approach builds wealth for our retirement.
WANT TO OWN PROPERTY IN SOUTH AFRICA, BRAZIL AND CHINA?
You do! As well as in many other countries throughout the globe, because a slice of our investment portfolio invests in the DFA Global Real Estate Securities mutual fund. I’ve pasted in the map from the attached article, the shaded areas represent the countries where are money has exposure. The Global Real Estate Securities Portfolio offers us well-diversified exposure to real property throughout the globe; real property includes shopping malls, billboards, data centers, office properties, and more. DFA estimates we have exposure to approximately 164, 000 properties! Having exposure to global real estate is another basket to place a retirement egg and another opportunity to invest our money and see it grow and produce income.
DFA MUTUAL FUND PERFORMANCE OVER A 15 YEAR PERIOD
Part of the reason we use Dimensional Fund Advisor (DFA) Mutual Funds in our investment portfolios is because of their long-run track record of out-performance as measured against their peers. This attachment includes the below table, which I have copied and pasted. The yellow part of the bar represents mutual funds no longer in existence – this could be because the funds didn’t survive for lack of performance or lack of interest, and it includes funds that were rolled into other funds; the blue represents the proportion of surviving funds placing behind DFA; the black line is DFA’s placement; and the grey represents the proportion of surviving funds placing ahead of DFA. Nothing is guaranteed going forward and past performance is not indicative of future results, but it is great to see so many DFA funds (of which our money is invested in most of them) near the top over a significant period.
Don’t be confused by the terms equity and fixed income, they are just fancy words for stocks (equity) and bonds (fixed income).
Q3 2017 MARKET SUMMARY
Here you can find DFA's Q3 2017 Quarterly Report. These summaries wrap up with a short article, whereby I highlight something specific for you to read. Unfortunately, this time around I found this article tough to get through and I don’t think it’s a good one to pass on to you, however, I did highlight some important words on the last page because it does a good job of summing up what we do as advisors for you and your retirement portfolio. I have pulled out that text here:
“…understanding the drivers of returns and how to best design a portfolio to capture them, what a sufficient level of diversification is, how to appropriately rebalance, and last but not least, how to manage the costs associated with pursuing such a strategy.
Finally, the importance of having an asset allocation well suited for your objectives and risk tolerance, as well as being able to remain focused on the long term, cannot be overemphasized. Even well-constructed portfolios pursuing higher expected returns will have periods of disappointing results. A financial advisor can help an investor decide on an appropriate asset allocation, stay the course during periods of disappointing results, and carefully weigh the considerations mentioned above to help investors decide if a given investment strategy is the right one for them.”