What a quarter and what a year!

Blog post #480

As we all know, the last 12 months have been unlike any that we have liked though before.

With further vaccine production and distribution, hopefully the US and world will gradually return to more normalcy in the coming months and years.

Financially, the past 12 months and the past quarter have provided excellent returns for investors of diversified portfolios.

We each have stories of how we have adapted to the Covid environment or how we have changed things in our lives. For me, purchasing a Peloton bike after Thanksgiving 2019 proved to be fortuitous. I have been more disciplined to ride consistently, as well as adding stretching and strength training, than I ever have in my life.

I have developed a discipline and routine that I want to continue for years to come. Exercising must be a lifetime commitment. This should be a habit that I continue for weeks, months, years and decades to come, similar to the best practices for long-term savings and investing.

Just as in investing and striving to reach financial goals, my exercise practice has been based on:

  • developing a plan,
  • being disciplined about exercising,
  • diversifying my exercises and types of rides,
  • and make adjustments as needed, over time.

During March 2020, as Covid cases worsened throughout the US and world, global financial markets dropped significantly…and then started an incredible rebound on March 23, 2020 (way before the economic recovery began!!).

As we have written about before, we recommended to our clients to remain disciplined throughout the Covid crisis.  Stick with your asset allocation plan.  Buy low.  Rebalance by selling fixed income and gradually purchasing stocks.

One year later, as we reflect on the past 12 months, being disciplined and sticking to your plan has been financially rewarding. Just as we benefit by doing different types of exercises (cardio and strength, not just cardio!), having a diversified portfolio has been rewarding.

Since the market bottom, but particularly since the beginning of November, 2020, the factors (or asset classes) that our firm emphasizes have far outperformed the broad US market indices, such as the S&P 500 or Dow Jones Industrial Average. While large US growth stocks have done well for many years, late 2020 and the first quarter of 2021 have been outstanding for US small company stocks, US large value and US small value stocks. So far in 2021, International value, small and small value company funds have far outperformed US large growth stocks.

A financial academic would believe that the benefits of owning stocks, called the equity premium, should exist every day. That would mean that they expect that stocks should be positive every day. But we know that over the short term, or sometimes for years, this does not occur. Stocks can be very volatile in the shorter term. However, over long periods of time, the equity premium does exist, as the benefit of owning stocks for the long term far exceeds other investment classes, such as cash or fixed income (bonds).

We recommend globally diversified portfolios, which means that we recommend stock investments in nearly all broad sectors, such as large and small, growth and value, US and Internationally. But we recommend a tilt, or more exposure, to small and value companies, as well as investing internationally. We recommend this because these asset classes provide greater expected returns (premiums) and diversification benefits, than just owning US large company stocks.

By being patient, and rebalancing to maintain exposure to these varying asset classes, we are now seeing the benefits of remaining disciplined and owning small company stocks and value stocks, as these factors are providing significant rewards in their performance.

All these are factors that help you towards your financial goals.

I need to do different types of exercises to remain fit and healthy over the long-term. In our opinion, your portfolio needs to be well diversified for long term success.

I need to be disciplined to exercise many times per week. You need to be disciplined to be a successful investor.

I need to change my workouts as I get stronger or want to focus on different parts of my body. We need to rebalance and make adjustments to your portfolio, based on changes in your life and changing market conditions.

We wish you good financial and physical health in the future! We are confident that we can assist you with your financial needs, but we are not yet prepared to expand into exercise training (though Michelle Graham may be able to help you)

Talk to us. We want to listen. We want to assist you, your family members and friends.

 

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