Stock markets worldwide have declined sharply this week as investors grapple with the ongoing spread of coronavirus disease (or COVID-19). Over the last two trading sessions, the S&P 500 Index is down 6.3%, and the Dow Jones Industrial Average has fallen by 1,911 points. Capital has surged into traditional safe havens, driving up the price of government bonds and gold.
Tuning Out The Noise
When faced with short-term noise, it is easy to lose sight of the potential long-term benefits of staying invested.
For investors, it can be easy to feel overwhelmed by the relentless stream of news about markets. Being bombarded with data and headlines presented as impactful to your financial well-being can evoke strong emotional responses from even the most experienced investors. Headlines from the “lost decade”1 can help illustrate several periods that may have led market participants to question their approach.
Happy New Year — and welcome to the new decade! We hope that you had a joyous holiday season surrounded by friends and family.
Global equities had mixed performance in the third quarter with large U.S. stocks inching higher and small U.S. stocks falling 2.4%. Foreign stocks struggled in the face of trade negotiations and ongoing tariff disputes. Real estate was a strong performing asset class, rising nearly 6% as interest rates declined, reducing financing costs. As has been the case for much of the year, political headlines remained prominent in the U.S. news cycle as the 2020 presidential election looms on the horizon and an impeachment inquiry got underway.
For over 28 years, Dowling & Yahnke has invested client assets as fiduciaries. Our firm is independent with respect to the investment vehicles we use, freeing us to design portfolios we believe will best meet client objectives. We continuously scrutinize our investment philosophy and the tools we use, challenging our thinking and experience to ensure our clients receive the best experience possible based on their financial objectives, risk appetite, and tax situation. In this quarter’s newsletter, we will explore our longstanding relationship with Dimensional Fund Advisors (DFA). While DFA mutual funds represent a minority portion of the assets we use in building portfolios, many of the philosophical and practical concepts underpinning DFA’s approach also permeate our thinking.
The Uncommon Average
“I have found that the importance of having an investment philosophy—one that is robust and that you can stick with— cannot be overstated.”
Investment fads are nothing new. When selecting strategies for their portfolios, investors are often tempted to seek out the latest and greatest investment opportunities.
Elevated stock market volatility, as we have seen the past two months, brings gloomy headlines and may elicit fear in some investors. Since the beginning of October, the U.S. stock market (Russell 3000 Total Return Index) has gone from being up nearly 11% for the year to up just 2% as of December 6th. Most of this decline has happened during a few sizeable down days in the market, which can be alarming. It is an impossible task to identify and quantify the specific causes of any market decline, but there are a few leading candidates this time:
Costs matter. Whether you’re buying a car or selecting an investment strategy, the costs you expect to pay are likely to be an important factor in making any major financial decision.
Combining an enduring investment philosophy with a simple formula that helps maintain investment discipline can increase the odds of having a positive financial experience.