What did we learn about investing in 2021?
2020 was the year of the unprecedented, but 2021 certainly had its fair share of newsworthy events. As we entered this year, there were still many uncertainties, and it's hard to believe how different our world looks today than it did 12 months ago. In 2021 we witnessed history through the rollout of vaccines, inauguration of a new president, and even billionaires going to space. No one knows what this year will bring, but there are a few key principles that can help improve the investment experience in the long run.
- Look beyond the headlines. Daily market headlines and your cousin's colorful commentary can lead to increased anxiety, but not necessarily increased performance. Overemphasizing the validity of headlines can entice you into chasing fads or not investing at all. There’s no evidence to suggest that investors can reliably time the market due to skill rather than luck. Missing only a few of the market's top days can significantly stifle a portfolio's growth.
- Discipline is key. Theoretical and empirical evidence tells us that low relative price companies should have higher expected returns than high relative price, or growth, companies. Exhibit one highlights how value underperformed growth from July 2017 – June 2020. However, an investor focused on short-term returns may have missed out on the impressive performance over the next 15 months. Research shows that premiums are difficult to predict as they can occur dramatically over short periods. A great way to potentially capture the premiums, including the market premium, is consistent exposure.
- Control what you can control. As we enter 2022, there are still many uncertainties. Next year will surely contain surprises, probably some good and bad. Fortunately, markets are poised to incorporate the new information as it develops. In the meantime, we can help develop plans you can stick with that meets your objectives and risk tolerances. While you can’t control what direction the market will go, you can hold a globally diversified portfolio tilted towards areas of the market with higher expected returns. You can also be mindful of expenses, turnover, and taxes that can eat away at your growth of wealth. As experienced Advisors we can develop a comprehensive plan that accounts for what is both relevant and manageable.
As we look forward to the year ahead, try not to get carried away with reading a crystal ball. Adopting a long-term perspective supported by evidence rather than emotion can provide a better investment experience.
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.