Joel Hefner explains why investors may prefer to have some allocation in equities in addition to bonds in order to grow their long-term wealth.
Basic principles of investing.
Basic principles of investing.
Can we predict which way stocks will move when interest rates change? Wei Dai, PhD, examined US market returns and a variety of interest rates to determine if there is an empirical relation.
David Booth explains that there is no escaping the risk and uncertainties involved in investing. However, investors can improve their odds of long-term success by making thoughtful, informed decisions; setting realistic goals; and focusing on what they can control.
In this short video, Nobel laureate Eugene Fama explains two key steps to investing: knowing why you want to invest and understanding your tolerance for risk.
In this short video, Nobel laureate Eugene Fama provides perspective for long-term investors on why they shouldn’t pay a lot of attention to short-term results.
In this short video, Nobel laureate Eugene Fama discusses how financial markets work, what fuels innovation, and the upside and downside of risk.
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.
While these events are now a decade or more behind us, they can still serve as an important reminder for investors today. For many, feelings of elation or despair can accompany headlines like these. We should remember that markets can be volatile and recognize that, in the moment, doing nothing may feel paralyzing. Throughout these ups and downs, however, if one had hypothetically invested $10,000 in US stocks in May 1999 and stayed invested, that investment would be worth approximately $28,000 today.2
When faced with short-term noise, it is easy to lose sight of the potential long-term benefits of staying invested. While no one has a crystal ball, adopting a long-term perspective can help change how investors view market volatility and help them look beyond the headlines.EXHIBIT 1
Hypothetical Growth of Wealth in the S&P 500 Index
Part of being able to avoid giving in to emotion during periods of uncertainty is having an appropriate asset allocation that is aligned with an investor’s willingness and ability to bear risk. It also helps to remember that if returns were guaranteed, you would not expect to earn a premium. Creating a portfolio investors are comfortable with, understanding that uncertainty is a part of investing, and sticking to a plan may ultimately lead to a better investment experience.
However, as with many aspects of life, we can all benefit from a bit of help in reaching our goals. The best athletes in the world work closely with a coach to increase their odds of winning, and many successful professionals rely on the assistance of a mentor or career coach to help them manage the obstacles that arise during a career. Why? They understand that the wisdom of an experienced professional, combined with the discipline to forge ahead during challenging times, can keep them on the right track. The right financial advisor can play this vital role for an investor. A financial advisor can provide the expertise, perspective, and encouragement to keep you focused on your destination and in your seat when it matters most. A recent survey conducted by Dimensional Fund Advisors found that, along with progress towards their goals, investors place a high value on the sense of security they receive from their relationship with a financial advisor.
Having a strong relationship with an advisor can help you be better prepared to live your life through the ups and downs of the market. That’s the value of discipline, perspective, and calm. That’s the difference the right financial advisor makes. EXHIBIT 2
How Do You Primarily Measure the Value Received from Your Advisor?
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
There is no guarantee investment strategies will be successful. Investing involves risks including possible loss of principal. Investors should talk to their financial advisor prior to making any investment decision. There is always the risk that an investor may lose money. A long-term investment approach cannot guarantee a profit.
All expressions of opinion are subject to change. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investors should talk to their financial advisor prior to making any investment decision.
While the number of listed stocks in the US has declined over the last two decades, a study by Dimensional suggests that investors should continue to expect a positive small cap premium, otherwise known as the size premium, over the long term.
Does a Declining Number of Stocks Affect the Size Premium?