Every four years, the presidential election throws investors into a frenzy of speculation regarding what each candidate would mean for the world of finance. In what seems like the most chaotic election in memory, uncertainty about financial markets and your portfolio is only natural. It is important in moments like these to take a step back and consult the history of US equities. The following chart from Dimensional Fund Advisors uses the hypothetical growth of $100 in a total market index fund to depict market performance starting in 1929.
What the data shows is that while presidential administrations can have an impact of financial markets in the short-term, US equities have had a consistent upward trend for close to a century. While past performance is no guarantee of future success, this trend should serve as a comfort for all investors worried about the effect of the election on their portfolio. It reaffirms that the most secure path to a successful portfolio is to invest early and for the long term. For more information on how we can help you invest for retirement, visit our website www.kdminvest.com.
The active-versus-passive investment debate is one that has raged on for decades and often leaves new investors confused as to the best place to put their money. On one hand, actively managed funds can seem exciting – a chance to outperform the market and speed up investment returns. On the other hand, passive investing has historically been seen as the safer option, touting both lower fees and risk. How should an investor decide on which strategy is best suited for them?
One telling piece of advice comes from the SPIVA (S&P Indices versus Active) Scorecard, widely taken as the authoritative source for statistics surrounding the active-versus-passive dispute. Updated on June 30, 2020, the scorecard finds that more than half of all fund categories have at least 50% of their funds being outperformed by their benchmark over the past year. Even more surprising, no fund category has more than 30% of their funds outperforming their benchmark over the longer 15-year period.
At KDM Investment Management, we believe in investing for the long term. Using a diversified group of evidence-based funds rather than speculative active management has overwhelmingly been shown to be the most effective way to secure a steady positive return on long-term investments. With the lifetime of most retirement portfolios reaching well beyond the 10-year mark, it makes sense to invest in a strategically diversified portfolio when planning for retirement. For more information on how we can help you invest for retirement, visit our website www.kdminvest.com.
The following article from Dimensional offers an insightful look into recent market volatility.
- Jeff Martin
The world is watching with concern the spread of the new coronavirus. The uncertainty is being felt around the globe, and it is unsettling on a human level as well as from the perspective of how markets respond.
At Dimensional, it is a fundamental principle that markets are designed to handle uncertainty, processing information in real-time as it becomes available. We see this happening when markets decline sharply, as they have recently, as well as when they rise. Such declines can be distressing to any investor, but they are also a demonstration that the market is functioning as we would expect.
Market declines can occur when investors are forced to reassess expectations for the future. The expansion of the outbreak is causing worry among governments, companies, and individuals about the impact on the global economy. Apple announced earlier this month that it expected revenue to take a hit from problems making and selling products in China1. Australia’s prime minister has said the virus will likely become a global pandemic2, and other officials there warned of a serious blow to the country’s economy3. Airlines are preparing for the toll it will take on travel4. And these are just a few examples of how the impact of the coronavirus is being assessed.
The market is clearly responding to new information as it becomes known, but the market is pricing in unknowns, too. As risk increases during a time of heightened uncertainty, so do the returns investors demand for bearing that risk, which pushes prices lower. Our investing approach is based on the principle that prices are set to deliver positive future expected returns for holding risky assets.
We can’t tell you when things will turn or by how much, but our expectation is that bearing today’s risk will be compensated with positive expected returns. That’s been a lesson of past health crises, such as the Ebola and swine-flu outbreaks earlier this century, and of market disruptions, such as the global financial crisis of 2008–2009. Additionally, history has shown no reliable way to identify a market peak or bottom. These beliefs argue against making market moves based on fear or speculation, even as difficult and traumatic events transpire.
Dimensional also stands behind the important role financial professionals play in helping investors develop a long-term plan they can stick with in a variety of conditions. Financial professionals are trained to consider a wide range of possible outcomes, both good and bad, when helping an investor establish an asset allocation and plan. Those preparations include the possibility, even the inevitability, of a downturn. Amid the anxiety that accompanies developments surrounding the coronavirus, decades of financial science and long-term investing principles remain a strong guide.
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