Small Stocks Surge at end of 2016 – DFA Article

Diversification is a topic I write about constantly as it is one of the keys to long term investment success. Closely related is discipline. The discipline to stick with smart investing techniques like diversification despite constant temptation to deviate from it. The stock markets are continuously “surprising” us.  Small stocks are of particular interest – and given the persistent (over time) and pervasive (around the world) out-performance of Small Cap stocks over Large Cap stocks – we slightly overweight Small Cap stock in out clients’ portfolios. The enclosed article by Dimensional Fund Advisors titled “A Vote for Small Cap Stocks?” covers the “surprise” of small cap stocks great perofrmance in November 2016. DFA used the Russell 1000 (large) and Russell 2000 (small) to make the comparison. 2016 Through October: Large: 5.82%  Small: 6.16% 2016 Through November: Large: 9.99%  Small: 18.00% The positive difference of small cap stocks outperforming large cap stocks in CY 2016 went from less than 1% to a little more than 8% in just one month. Points: 1) Always be diversified and 2) The benefits of Small Cap outperforming Large Cap can come and go very quickly. I want to point out that this is not a political statement! Just an observation. And you can bet on more surprises – up and down – no matter who is in office – which is exactly the point here. As much as political partisans on all sides would like to claim that their candidate and ideals are best for stock market movement – it’s very difficult to prove. And often there are trade-offs – for example though small caps did well recently coinciding with the election –...

Prediction Season

Please see the PDF found here and also read the introduction and conclusion below. Click the back arrow to return after opening the PDF. Prediction Season – December 2016 Introduction: The close of each calendar year brings with it the holidays as well as a chance to look forward to the year ahead. In the coming weeks, investors are likely to be bombarded with predictions about what the future, and specifically the next year, may hold for their portfolios. These outlooks are typically accompanied by recommended investment strategies and actions that are aimed at trying to avoid the next crisis or missing out on the next “great” opportunity. When faced with recommendations of this sort, it would be wise to remember that investors are better served by sticking with a long-term plan rather than changing course in reaction to predictions and short-term calls. <see PDF for the full article> Click the back arrow to return after opening the PDF. Conclusion: As the end of the year approaches, it is natural to reflect on what has gone well this year and what one may want to improve upon next year. Within the context of an investment plan, it is important to remember that investors are likely better served by trusting the plan they have put in place and focusing on what they can control, such as diversifying broadly, minimizing taxes, and reducing costs and turnover. Those who make changes to a long-term investment strategy based on short-term noise and predictions may be disappointed by the outcome. In the end, the only certain prediction about markets is that the future will remain full...

Wow – New Market Highs & Unpeeling the 401k Onion

As of December 9, 2016, “the markets” have been doing quite well. Keep in mind there’s a million ways to define the market. Our definition of “the market” is performing even better than the average person’s definition. It appears the “premiums” we employ for our clients – small stocks beat large and value stocks beat growth stocks are in favor, so our clients are enjoying higher performance in their portfolios. Upward moving markets happen! It may seem like a surprise, but since we cannot predict market movements – it’s actually not a surprise. We have no idea where the market will go or when it will go there. A year from now, it could be higher, lower or the same. (Choose one and you have a 33% chance of being correct, just like the celebrated Wall Street Forecasting “Experts”!) Our human behavior and biases make it difficult for the average person to be a great investor. After a notable market movement (or non-movement) has happened, as time passes, we begin to think we saw it coming. It’s obviously not true, but our minds play tricks on us. Also when we are in the midst of a market situation – we suffer “recency bias” – meaning that we over-focus on the present without seeing the bigger picture. Right now a lot of people are piling onto the market when we are at record highs. That’s not a problem as long as your commitment is 5 years or longer. We can help you “keep your cool” and make more money than most, by staying invested and highly diversified. The media and...

End of Year Actions – May Take Time – Act Now!

The only reason to feel pressured or rushed is because some actions take some time to determine and then to get them done. CPA’s, custodians and brokerages get overwhelmed this time of year. A favorite saying of mine is that “financial planning is not an emergency” – but if you have not budgeted your planning and time appropriately and you’re running into a deadline like 12/31/2016 – then it can become problematic. So here are some thoughts on the most common activities. Important: Everyone’s situation is different. Work with experts and then do what they tell you. Best if the advice is collaborative from a 2-3 person team that has reviewed your circumstances and goals. Most of you reading this are not experts. Don’t get fooled into making yourself an expert. You are the ultimate decision-maker. You hire the experts. Clients: Contact us if any questions! Here is a list of things to consider: High wage earners should meet (ASAP) with their CPA to determine if there are any actions that need to be taken by 12/31/2016 to mitigate taxes due April 2017. If those activities include actions by a custodian (TD Ameritrade Inst.) or a brokerage, then the real deadline may be 12/15/16 or sooner. Business owners have the most tools at your disposal – and it is complex. If you’ve recently greatly accelerated profits – contact us. We’ll bring a team to help you implement the best possible strategy. We can help you protect your success from predators. Please don’t allow a strong aversion to pay taxes cause you to make less than optimal decisions. You want the best...