Client Letter – Q4 2019

During the past year, the best performing asset classes were U.S. large stocks and real estate.  The following chart shows the 1-year, 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 December 31, 2019

DFA Fund / Index1 Year Return10 Year Return*20 Year Return*
S&P 500 Index31.4913.566.06
DFA U.S. Large Value25.4512.758.49
DFA U.S. Small21.7512.118.87
DFA U.S. Small Value18.1210.689.90
DFA Real Estate (REITs)28.1012.4011.43
DFA Int’l Large22.045.443.41
DFA Int’l Large Value15.674.145.40
DFA International Small24.208.088.38
DFA Int’l Small Value21.007.179.20
DFA Emerging Markets16.033.966.69
DFA 5-Year Global Bonds4.042.793.77
DFA Inflation Protected Bonds8.463.49N/A

*Note: Returns for periods greater than 1 year are annualized.  Top 3 returns are in bold.

Fresh from the wounds of the 2008 financial crisis, the 2010s was a decade full of surprises that reinforced the dangers of making investment decisions based on useless predictions. The headline predictions at the beginning of the decade called for a double dip recession and high inflation. What actually happened was the economy continued a slow recovery matched with low inflation and an extended period of low interest rates. Unemployment also dropped dramatically and stayed low through the back end of the decade.

Unsurprisingly, there were bumps along the way including the Greek debt crisis, the taper tantrum, Brexit, and a trade war with China. Despite the negative headlines, the global stock market returned 9.05% annualized over the last ten years. The S&P 500 lead the way with an even better return of 13.56% annualized. One might wonder why returns were so good over a slow growth period and the answer comes down to one word: earnings. Corporate earnings more than doubled over the last ten years fueled by revenue growth, productivity gains, share buybacks, and lower taxes.

2019 capped off the decade with an exclamation point! The global stock market returned approximately 25% and the S&P 500 returned approximately 31%. Big US stocks were the best performers of the year with real estate and value stocks not far behind. Even bonds enjoyed a great year as interest rates unexpectedly declined causing bond values to rise. This past quarter was led by international stocks and emerging markets as the trade war cooled off.

The end of the decade also comes with big changes to the retirement landscape as the SECURE Act became law, as detailed in our recent blog post. Major changes that will affect clients are:

  • Required minimum distributions (RMDs) now start at age 72
  • Allows traditional IRA contributions past age 70
  • No more “stretch IRA” for non-spouse beneficiaries of IRAs

We will be going over these changes as we meet with clients over the next year to review the impact and plan accordingly.

Dimensional Fund Advisors also announced an 8% management fee reduction for 77 of their mutual funds, which impacts most of the funds that we use.  Please see our blog post for the full list of changes.

Now, since tax time is approaching, we would like to go over where you can find your tax documents. You will receive your 1099s directly from TD Ameritrade, or you can download them from TD Ameritrade’s website.  Please note that we do not have your 1099s.  Also, client fees are no longer tax deductible on your federal tax return, so we will not be doing the fee report this year or going forward.  This change was part of Trump’s tax law overhaul last year.  As a reminder, if you have changed your tax preparer, please fill out a new consent form so that we can request your tax returns be sent to us.

We encourage you to visit our website for ongoing commentary and timely blogs we write about the markets and other financial topics. You can also see our posts on Twitter (@sparrowwealth), Facebook (@SparrowWealthManagement), Google, and LinkedIn.

As always, please don’t hesitate to call or email if you want to discuss something or you’re worried about the markets.  We greatly appreciate the trust you have placed in us to help guide you forward.

Happy New Year!

Chris signature

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.



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