Copper Leaf Financial uses Dimensional Fund Advisors as investment managers for our client’s investment portfolios. They align with our evidence based philosophy by applying academic research and decades of data to rigorous methodology and practice. The strategies they manage provide us with the investment building blocks needed to construct low-cost, globally diversified portfolios designed to reduce overall risk and improve long-term, risk-adjusted returns.
With the recent events in Ukraine, should I make changes to my portfolio?
There is no downplaying the frightening news over the last week. With many questions left unanswered, we want to provide as much transparency as possible.
While the recent events are certainly shocking, investors around the world have been adjusting their expectations over the past weeks. Geopolitical events are widely followed by investors who incorporate new information into prices quickly. As the situation develops further, we believe that markets will continue to digest this information.
The situation is currently evolving, but as of now, many Western governments including the US have issued widespread sanctions against Russia. Dimensional Fund Advisors’ global Portfolio Management and Compliance teams are actively monitoring the situation. We have experienced market closures in the past such as in New York in 2001, Egypt in 2011, Greece in 2015, and Tokyo in 2019. Dimensional does not buy locally listed Russian securities but gets exposure through depository receipts purchased on the LSE and NYSE. These depository receipts may offer certain investor protections and liquidity benefits. Russian-denominated bonds are not eligible in Dimensional’s fixed income portfolios.
In 2014 following Russia’s annexation of Crimea, Dimensional reduced the weight of Russia in our emerging markets and global equity portfolios. As of December 31, 2021, Russian equities represented from 0.3% to 1.8% of our US-domiciled emerging markets equity mutual funds and ETFs, compared to 3.6% in the MSCI Emerging Markets Index.
Dimensional’s systematic approach has proven successful in times of stability as well as uncertainty. This flexible method allows us to adjust quickly to information in real time without being constrained to a benchmark. Broad diversification allows for additional adaptability. In periods of volatility, these robust processes allow freedom for thoughtful risk management.
No two historical events are the same, but we can draw upon lessons learned from history. The below chart illustrates the growth of a dollar that was invested in global equities alongside past crises. For each of these developments, it was daunting to look towards the future. However, investors who were able to look past the headlines were rewarded for their discipline.
In periods such as this, some might want to move to cash. Reacting emotionally and moving to the sidelines could mean missing out on some of the best performing days. A recent report by Morningstar investigated how successful investors have been when trying to time markets. They compared Balanced strategies, which only make minimal changes in allocations to stocks, with Tactical Asset Allocations, which make periodic shifts in allocation to stocks. Ultimately, the report concluded, “The failure of tactical asset allocation funds suggests investors should not only stay away from funds that follow tactical strategies, but they should also avoid making short-term shifts between asset classes in their own portfolios.”(1)
These times are difficult, and there is no way to predict what the future will bring. A trusted financial advisor may at least help limit the weight of monetary stress. Rarely is it advisable to mix emotions and investing. A key tenant of long-term investing is having discipline not only in good times but in the difficult periods as well. History tells us that markets have rewarded investors willing to tune out the noise and stick to their plan.
At Copper Leaf Financial, we work with you over the long term. We develop a plan that acts as a roadmap – and evolves over time. A proper plan enables you to invest the same way we do: broad diversification, low costs and appropriate levels of risk. We prize evidence over emotion and we value academic and market research over fluctuating opinions. Click here or call us today (802.878.2731) to schedule a free introductory meeting.
This material has been authored by Dimensional Fund Advisors and CLF makes no representation and takes no responsibility for the accuracy of the information presented.