This is a great follow-up to the first IFA town hall with Apollo. If you are interested in learning more about why we tilt toward the premiums–like small and value–please take a half-hour from your schedule to watch; it’ll be well worth your time.
Mark Hebner talks with Dimensional Fund Advisors’ Apollo Lupescu about global premiums. Video Source: Index Fund Advisors, ifa.com.
Dimensional’s 2020 analysis of US-based mutual funds shows that only a small percentage of funds have outperformed industry benchmarks after costs—and among top-ranked funds based on past results, only a small percentage have repeated their past success. Returns data updated through 2019.
As you know, market downturns and bouts of volatility aren’t rare events—even those that grow out of health crises such as the SARS (severe acute respiratory syndrome) outbreak in 2003 and the Zika virus outbreak in 2016. One key to getting through such turbulent times is to try and understand that these market conditions don’t last forever and that markets can recover more quickly than you might think. Remember that investing is long term, and takes into account that there might be some market bumps along the way.
Of course, there are no guarantees when it comes to the markets. A market rebound can take days, weeks, or even months. The new coronavirus has dealt a significant blow to the economy of China, an economic leader and an essential link in the global supply chain. Nonetheless, if your investment plan is sound, and you continue investing through corrections, you can find a way to stay on track to reach your long-term financial goals.
Here are 4 tools to help you along the way
Understanding market downturns
Gain a better understanding of the types of market declines and how to best respond to them.
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Smart things to do (that many won’t) in a down market
Understand the actions and attitudes that are under your control to weather market volatility.
View PDF >
Short-term volatility: What’s your move?
Market reactions to previous health crises can offer useful lessons today.
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Beat the short-term market jitters?
Keep market swings in perspective by taking a long-term view.
View PDF >
February 27, 2020
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.
1Apple, February 17 press release. https://www.apple.com/newsroom/2020/02/investor-update-on-quarterly-guidance/
2Ben Doherty and Katharine Murphy, “Australia Declares Coronavirus Will Become a Pandemic as It Extends China Travel Ban,” The Guardian, February 27, 2020. https://www.theguardian.com/world/2020/feb/27/australia-declares-coronavirus-will-become-a-pandemic-as-it-extends-china-travel-ban
3Ben Butler, “Coronavirus Threatens Australian Economy Reeling from Drought and Fires,” The Guardian, February 5, 2020. https://www.theguardian.com/business/2020/feb/05/coronavirus-threatens-australian-economy-reeling-from-drought-and-fires; Ed Johnson, “Australia Says Economy to Take ‘Significant’ Hit from Virus,” Bloomberg, February 5, 2020. https://www.bloomberg.com/news/articles/2020-02-05/australia-says-economy-to-take-significant-hit-from-virus
4Alistair MacDonald and William Boston, “Global Airlines Brace for Coronavirus Impact,” The Wall Street Journal, February 26, 2020. https://www.wsj.com/articles/germanys-lufthansa-makes-cuts-as-it-braces-for-coronavirus-impact-11582712819