The battle for better investing may at times swing toward gaining, remain relatively unchanged or sometimes unfortunately lose ground. Although no significant downturn occurred in the 3rd quarter, the Market Review for Q3 indicates that stocks were down slightly, bonds were stable and volatility was low. Last quarter was a good reminder that we never know when the stock market is going to provide investors with significant returns and when the stock market will be flat or even negative. For long-term investors, "time in the stock market" is much more important than trying to "time the stock market."
Stocks Down Slightly
As you can see on page 3 and 4 of the Quarterly Market Review, US and International Developed Stocks were down slightly last quarter. However, performance over the last year (Q4 2020 -Q4 2021) has been very strong as you can see in the table below.
More detailed information regarding the performance of factors within each asset class can be found on pages 8-10 of the attached Quarterly Market Review.
Volatility was Low
Volatility in the stock market was low last quarter, as you can see on relatively flat light indicating performance on the graph on Page 5 of the Quarterly Market Review. Although there weren't significant swings in the stock market during last quarter, we never know when those may show up. The most significant volatility the stock market experienced in recent memory was during the initial stages of coronavirus in Spring of last year.
When volatility does show up it is essential to consider rebalancing a client's portfolio. For this reason, we review each of our client's portfolios on a regular basis (monthly for multi-fund portfolios and quarterly for single-fund portfolios) to see if they need to be rebalanced or to see if any excess cash from distributions that should be invested.
Bonds were Stable
As you can see on page 3 of the Quarterly Market Review, bond market index returns both in the US and Internationally eked out slight returns last quarter of 0.05% and 0.09%. Even though these returns were just slightly positive, we will take those returns especially since the returns over one year are slightly negative. Bonds are meant to be a stabilizing force in our client's portfolios. For example, the worst quarter since January 2001 in bonds has been between -2.7% and -3.4%, while the worst quarter in stocks has been between -22.8% and -27.6%. Although past performance cannot predict future returns, when we do experience a stock market downturn, we expect the bond funds not to go down nearly as much as the stock funds.
The 50-Year Battle
As we market performance and provide academically researched investment strategies tailored to each client’s unique situation, one of our partners is Dimensional Fund Advisors, a firm that pioneered applying academic research to practical investing. While the focus may be investing, the battle is about improving people’s lives.
On recounting the 50-year journey of turning academic research into creating a new way of investing, we echo what David Booth, the Executive Chairman and Founder says, (see pages 18-19) in our approach at Financial Freedom for Dentists:
“For me, working in finance has always been about improving people’s lives. We created indexing to improve upon stock picking. We created Dimensional to improve upon indexing. Each day we strive to help our clients in new and better ways. That’s why I thought 1971 was the most exciting time to be in this business. Then, I thought 1981 was the most exciting time to be in this business. But the truth is, it’s every day, as long as we’re able to keep helping people in innovative ways.”
As you examine this Quarterly Market Review, please don't hesitate to reach out to us with any questions you may have or how we can help you look for the better way to invest to reach your financial goals.