DFA Seminar Recap

Financial Advisor DFA Seminar RecapLast week we were thrilled to host an interactive investment strategy event featuring Apollo Lupescu from Dimensional Fund Advisors. Apollo received his PhD in economics and finance from the University of California—Santa Barbara. Dimensional Funds make up a significant component of many of our clients’ portfolios, and with the recent market volatility this event proved to be very timely.

The discussion centered on the balance of wealth preservation and appreciation potential, international investing, the importance of diversification, and markets’ behaviors during Presidential election years. Apollo shared beneficial information as it applies to these relevant topics.

How do we preserve our money?
He began by discussing the understandable human nature to have concern/a survival instinct during volatile markets. We all know the markets go up and down, and over the last 90 years, that fluctuation has resulted in the average annual stock return being 8 percent to 10 percent. But, interestingly, over the last 90 years the stock markets have not ONCE actually returned between 8 percent and 10 percent!

Importance of maintaining a long-term focus
Stock market returns if you view the market over the last 90 years:

Time Frame
Daily
Monthly
One Year

Positive
55%
70%
78%

Negative
45%
30%
22%

Why should investors embrace this volatility?
The answer is the opportunity for growth appropriately balanced with stability. Over the same 90-year period, government Treasury bills (or T-bills) have NEVER had a negative year of returns, but they average only 3 percent to 4 percent growth. This return is not enough to outpace inflation and loss of purchasing power. Stocks provide the opportunity for growth, but should be incorporated into a portfolio in a very diversified manner.

Broad diversification is best accomplished by owning groups of similar stocks/bonds, or what are commonly called asset classes. Our constant portfolio monitoring takes advantage of either buying or selling respective asset classes when they have either over-performed or under-performed their historical norms.

Why do we keep investing in international and emerging markets?
As of late, international and emerging market asset classes have performed poorly. Much of this is related to the current strong value of the U.S. dollar and volatility, particularly in China. It’s important to note the Chinese investment exchange system differs from ours—85 percent of the trading that occurs in China is done on an exchange that is only available to Chinese citizens. The other 15 percent of trading in China is done on an exchange available to global investors, but the media’s reporting on the Chinese markets is reflective only of the returns experienced by Chinese citizens. This reporting information doesn’t apply to a Retirement Planning Group (or any American) portfolio.

Despite their recent poor performance, international asset classes play an important role within a well-diversified portfolio. From 2000-2009, $1 invested in the S&P 500 would have declined to $0.91, however, international investments in that same period would have experienced double-digit returns. But, positive performance from international and emerging market investments tend to happen in short, quick bursts. Since 1988, emerging markets stocks have averaged a return of 11.5 percent, but those returns have come with 60 percent more year-over-year volatility compared to domestic stocks.

With the election coming up, what will the market to do?
One audience member asked about the elephant in the room: Is there a correlation between how the market performs and Presidential election years? In short: No. It is typically perceived that a Republican President is better for the economy, but there is no empirical data to support this notion. In fact, during President Obama’s administration, the stock markets have boasted a 17 percent average return, while during George W. Bush’s administration, the markets returned a -2 percent (during Bill Clinton’s tenure, returns were over 18 percent). Positive or negative periods in the market are not a result of a Presidential leader and are merely coincidence with how the global economic system is performing during a given period.

How do I position my portfolio?
During volatile periods, it’s extremely important to focus on the factors that you and your advisor can control. Have you and your advisor clearly laid out your financial goals? Have you created a comprehensive plan to achieve those goals? Does your advisor have a systematic investment process that aids in achieving those goals? Is your advisor managing your portfolio in a manner that appropriately balances stability with the potential for growth? We feel confident at The Retirement Planning Group that we are accomplishing all these things with our clients.

Apollo wrapped up the seminar with a very topical quote from J.P. Morgan. When asked his thoughts on the markets, J.P. Morgan would ALWAYS give the same response, “The markets will fluctuate.”

With the assistance of your advisor, periods of short-term volatility will not derail your long-term retirement success. As always if you have questions please contact your advisor.

DFA Seminar Recap 1
DFA Seminar Recap 2

Sincerely,
The Retirement Planning Group
www.planningretirements.com

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About Ryan Costello

Ryan was born and raised in Olathe, KS and currently resides in Leawood, KS. He played college football while earning his degree from Baker University. His drive and competitiveness stems from his background in athletics, which has played a big role in who he is today. Ryan has been a Financial Advisor since 2002. Although he didn’t realize it at the time, his destiny into the world of finance began early in his high school days when a checkbook of his didn’t quite balance out. From that point forward, he developed a meticulous attention to detail with all things financial – a trait that he proudly carries with him today.

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About Ryan Costello

Ryan was born and raised in Olathe, KS and currently resides in Leawood, KS. He played college football while earning his degree from Baker University. His drive and competitiveness stems from his background in athletics, which has played a big role in who he is today. Ryan has been a Financial Advisor since 2002. Although he didn’t realize it at the time, his destiny into the world of finance began early in his high school days when a checkbook of his didn’t quite balance out. From that point forward, he developed a meticulous attention to detail with all things financial – a trait that he proudly carries with him today.