Happy New Year! We had another excellent year and I think you will be pleased with the results. Our diversification into such areas as real estate, small stocks, international stocks, and emerging markets stocks and bonds was very profitable in 2004. Returns in those areas beat the U.S. stock market, as measured by the Standard & Poor’s 500 Index. The following chart shows the recent performance of many DFA funds (representing different asset classes) compared to the S&P 500 Index:
Market Returns for the period ending December 31, 2004
|DFA Fund / Index||1 Year Return||3 Year Return*||5 Year Return*|
|S&P 500 Index||10.87||3.58||-2.30|
|DFA U.S. Large Value||18.25||10.60||9.14|
|DFA U.S. Micro Cap||18.39||18.16||14.32|
|DFA U.S. Small Cap Value||25.38||21.94||19.37|
|DFA Real Estate (REITs)||32.06||23.10||22.07|
|DFA Int’l Large||18.81||11.52||-1.14|
|DFA Int’l Large Value||28.79||20.89||8.37|
|DFA International Small||30.91||28.43||12.39|
|DFA Int’l Small Value||34.80||33.41||17.03|
|DFA Emerging Markets||29.90||23.52||4.47|
|DFA 2-Year Global Bonds||0.73||2.62||4.06|
|DFA 5-Year Global Bonds||2.90||5.35||5.72|
*Note: Returns for periods greater than 1 year are annualized. Top 3 returns are in bold.
As usual, I have no idea what 2005 will bring. There are plenty of negatives to start the year with: high oil prices, rising inflation, a falling dollar, soaring budget and trade deficits, a quagmire in Iraq. And then there are the positives: oil prices have fallen from their highs, a falling dollar will help our exports, higher interest rates should help our short term fixed income holdings, continued economic growth may boost the stock market. If you want to know the prospects for 2005, ask me next Dec. 30. I should have a pretty clear picture by then.
I don’t place much significance on annual trends anyway. A calendar year is an arbitrary division of time and, in the investment world, too short to indicate what our long-term results will be. I am more interested in where we will be in 10 years. The big question is whether we will beat inflation over that period. I suspect we will. We’ve done it over the last 10 years. However, there are never any guarantees. I’ll have more to say on this topic in 2015.
Meanwhile, I will continue to help you stay on course with a well-diversified investment portfolio. Your job is to ignore the short-term, don’t panic or get greedy, and to add money to your portfolio whenever you feel you should. How much you save for the future is more important than how much you earn on your investments.
I have included several things in this quarterly mailing. First, for clients with taxable accounts, I have provided a Realized Gains and Losses report, which shows the net proceeds and cost basis for taxable securities that were sold during the past year. Also, I have provided a report that shows the fees you paid during 2004. Make sure that you give both of these reports to your tax accountant, if you use one.
The mission of Keystone Financial Planning is to help you to find freedom and peace in your financial life. If my services are helping you to achieve these things, then don’t forget to tell your friends and associates about your experience. My website (www.KeystoneFP.com) provides an easy way for your friends to learn more about my services.
As we start the New Year, I am working hard to improve the quality and value of my services. I welcome your feedback. Let?s work together to make 2005 another fabulous year!
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.