During the second quarter of 2020, the best performing asset classes were U.S. and international small and value stocks. The following chart shows the 3-month, 10-year, and 20-year performance of many DFA funds (representing different asset classes) compared to the S&P 500 Index:
Market Returns for the period ending June 30, 2020
|DFA Fund / Index||3 Month Return||10 Year Return*||20 Year Return*|
|S&P 500 Index||20.54||13.99||5.91|
|DFA U.S. Large Value||16.42||10.70||7.70|
|DFA U.S. Small||23.54||10.09||7.49|
|DFA U.S. Small Value||22.26||7.70||8.00|
|DFA Real Estate (REITs)||13.13||10.22||9.94|
|DFA Int’l Large||17.27||5.61||3.03|
|DFA Int’l Large Value||15.42||3.09||4.09|
|DFA International Small||21.00||6.92||7.26|
|DFA Int’l Small Value||19.38||5.78||7.76|
|DFA Emerging Markets Core||19.68||3.11||6.71|
|DFA 5-Year Global Bonds||0.93||2.51||3.69|
|DFA Inflation Protected Bonds||4.58||3.64||N/A|
*Note: Returns for periods greater than 1 year are annualized. Top 3 returns are in bold.
We would like to start by congratulating all of you who stuck to the plan during two of the wildest quarters in stock market history. The last six months have been incredibly difficult for many reasons. The unusual volatility in the stock market caused many people to make big mistakes when managing their investments. In fact, according to Fidelity, approximately one third of investors age 65 and up sold some portion of their stocks during the downturn.
A downturn is always uncomfortable to deal with, but that is why it’s so important to have an investment plan when the markets decline. Planning for the occasional downturn and knowing what to do when the stock market declines makes it much easier to deal with. A smart investment strategy, combined with a detailed financial plan, helped us put into context how lower stock prices impact your goals and what actions should be taken during these stressful moments, if any.
This led to us performing the most rebalancing and tax loss harvesting trades we can remember since the 2008-2009 financial crisis. We called clients, posted blogs, and sent emails describing why we believed these moves made sense and urged clients to stick with the plan. Stock market history reminded us that if we can take the long-term view, these moves would make sense over time and help our portfolios recover faster once the market rebounded. We executed these trades for many clients over March, April, and May, knowing we would help reduce your tax bill and take advantage of the downturn.
Ultimately, we were rewarded in a huge way! Since the beginning of April the global stock market and the S&P 500 have grown by 20%.* US small cap value stocks have grown 22%.** Many investment categories still have a long way to go before fully recovering, but significant progress has been made in a relatively short period of time.
The markets rallied strongly on support from Congress and the Federal Reserve. Lockdown efforts dramatically reduced daily cases and ultimately led to many states slowly opening back up. Now begins the effort to contain the virus while reopening, which is no small task and has already seen several bumps in the road.
2020 has also brought several incredible financial planning opportunities. Required minimum distributions (RMDs) have been waived and the IRS recently announced that anyone who already took an RMD can return it by August 31st. This change, along with lower stock prices, has created an incredible opportunity to save money on taxes over the long run via Roth IRA conversions. These strategies won’t apply to everyone, so we will be reaching out to those clients they are applicable to. Needless to say, 2020 has been a very busy year for tax loss harvesting, rebalancing portfolios, and financial planning strategies, but one that will likely result in substantial opportunities for many of you.
Also, we recently updated our ADV to add Fidelity as our new custodian. You can read the updated version by clicking on this link: ADV Part 2A & 2B.
Thank you for your continued trust and confidence. As always, please don’t hesitate to call if you need to discuss something—that’s what we are here for.
*As measured by the Vanguard Total World Stock Index Fund (VTWIX) and the Vanguard 500 Index (VFIAX )
**As measured by the DFA U.S. Small Cap Value (DFSVX)
About Christopher Jones
Christopher Jones is the Founder and President of Sparrow Wealth Management, a fee-only financial planning and investment management firm. Before entering the investment field, Chris was a management consultant for Deloitte Monitor. He graduated summa cum laude from Brigham Young University with a B.S. in Economics and a minor in Business Management.