During the past quarter, the best performing asset classes were U.S. small, U.S. small value, and international large value stocks. The following chart shows the 3-month, 1-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, 2020
|DFA Fund / Index||3 Month Return||1 Year Return||20 Year Return*|
|S&P 500 Index||12.15||18.40||7.47|
|DFA U.S. Large Value||18.52||-0.61||7.93|
|DFA U.S. Small||28.70||11.17||9.31|
|DFA U.S. Small Value||32.66||2.23||9.55|
|DFA Real Estate (REITs)||8.36||-5.04||9.77|
|DFA Int’l Large||15.94||8.12||4.60|
|DFA Int’l Large Value||22.20||-2.14||5.29|
|DFA International Small||17.97||9.26||9.16|
|DFA Int’l Small Value||19.81||0.81||9.42|
|DFA Emerging Markets||20.24||13.89||9.25|
|DFA 5-Year Global Bonds||0.21||1.52||3.51|
|DFA Inflation Protected Bonds||1.66||11.65||N/A|
*Note: Returns for periods greater than 1 year are annualized. Top 3 returns are in bold.
Despite all the things to worry about in the fourth quarter, such as the election, rising COVID cases, and a stalemate in Congress, the stock market responded with strong growth to continue its climb to new highs and beyond. The S&P 500 gained 12.15% and the global stock market** gained 17.39% for the quarter. Small value stocks gained an incredible 32.66%*** for the quarter. Value stocks, international stocks, small international stocks and emerging markets stocks all outperformed the S&P 500 for the quarter. Our patience certainly was rewarded for maintaining our holdings in those categories that struggled earlier in 2020.
Watching the markets plummet in March only to see an incredible recovery over the next nine months will be something we never forget. This type of event is one that sticks with you as an investor because it provides such a valuable lesson. The markets humbled even the smartest of stock market experts and reminds us, yet again, why we don’t try to predict market movements in the short term. There simply are too many variables and too many unexpected surprises, both good and bad, to reliably be able to predict the market’s direction over short periods of time.
Investors who tuned out the election noise were also rewarded as markets received a huge boost from not one, but two vaccines proving in phase three trials to be extremely effective against COVID in November. We believe the markets also benefited from a “relief rally” now that the election is mostly over (still waiting Georgia Senate election as of this writing). Ultimately those vaccines received FDA approval in December and the mammoth task of vaccinating the country begins.
This moment provides hope that the light is at the end of the tunnel for this difficult journey. Fortunately, Congress eventually passed a second round of stimulus that includes more money for small businesses and another round of checks for individuals and families who qualify. One notable thing missing from this stimulus package; no waiver for 2021 Required Minimum Distributions (RMDs). We believe 2021 will be a “normal” year for those who have RMDs, in that you must take your distribution by December 31st or face a 50% penalty.
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 and Fidelity, so make sure you have your current address updated with TD Ameritrade. You can also download them from TD Ameritrade and Fidelity’s website. Please note that we do not have your 1099s. 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 http://www.sparrowwealth.com 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. We greatly appreciate the trust you have placed in us to help guide you forward.
Happy New Year!
*As measured by the S&P 500 index
**As measured by the DFA World Core Equity Portfolio (DREIX)
***As measured by the DFA US Small Cap Value fund (DFSVX)
About Christopher M. Jones, CFP®
Christopher M. Jones is the Founder and President of Sparrow Wealth Management, a fee-only financial planning and investment management firm based in Hermosa Beach, CA. 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. Chris is a CERTIFIED FINANCIAL PLANNERTM practitioner.