Client Letter – Q4 2023

During the past quarter, the best performing asset classes were U.S. small stocks, small value stocks, and real estate.  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, 2023

DFA Fund / Index 3 Month Return 1 Year Return 20 Year Return*
S&P 500 Index 11.69 26.29 9.69
DFA World Core Equity 10.70 20.48 N/A
DFA U.S. Large Value 9.07 11.47 8.60
DFA U.S. Small 13.67 17.64 9.11
DFA U.S. Small Value 14.81 18.91 9.00
DFA Real Estate (REITs) 17.88 11.18 8.13
DFA Int’l Large 10.29 17.87 5.78
DFA Int’l Large Value 6.49 17.79 6.08
DFA International Small 10.75 14.43 7.59
DFA Int’l Small Value 9.34 17.58 7.72
DFA Emerging Markets 7.77 13.08 7.42
DFA 5-Year Global Bonds 1.44 5.00 2.40
DFA Inflation Protected Bonds 4.58 3.93 N/A

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

The final quarter of 2023 ended on a high note as the investment markets rallied strongly in response to cooling inflation and a potential pivot from the Federal Reserve to a less restrictive interest rate policy. The markets were encouraged that the Federal Reserve appears to be done raising interest rates and may start cutting rates as early as spring 2024, although the summer appears more likely. In response to this policy shift, the short-term U.S. bond market* finished the quarter up 3.37% and the global stock market** was up 10.70% for the fourth quarter.

In retrospect, 2023 was a year where the investment markets truly “climbed a wall of worry” as the old Wall Street saying goes. The year started with high inflation, followed by a regional banking crisis in the spring, four interest rate increases between February and July, and a summer government debt ceiling stalemate. Despite all of that, both stocks and bonds ended up having an excellent year.

This may cause investors to wonder if the markets are out of touch with reality. The truth of the matter is that even with all of those negative events, the economy and the job market performed better than expected, which is a big reason why the investment markets did so well. At this point last year, it was universally agreed upon that rising interest rates would tip the economy into a recession in 2023. In fact, in this very letter last January, we cautioned investors to remember “predictions about the markets and the economy are useless from an investment perspective.”

Fortunately, patience and discipline paid off and the markets rewarded investors who stuck to their investment plan. This year has been one of the strongest reminders that core investment principles, including those as simple as ignoring market predictions and exercising patience during downturns, are key to your investment success.

Lastly, we are getting to that time of the year when you need to start gathering all your tax documents. You will receive your 1099s directly from Fidelity via email, so you will need to log into the Fidelity website to download them.  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. If you have not provided us with a consent form or you do your own taxes, then please upload your completed 2023 tax return into the “Shared Docs” folder in your eMoney vault.

Just as a reminder, Naz and I moved our primary residence to Orlando, Florida in early 2023.  Our first year here has been amazing!  We love the warm climate, live less than an hour from the beach, and benefit from lower tax rates!  Let us know if you’re visiting Orlando and we can meet up for lunch.

We both work from our home offices, but our business mailing address and office phone are as follows:

Sparrow Wealth Management
6900 Tavistock Lakes Blvd, Suite 400
Orlando, FL 32827
Phone / Fax: (407) 583-6375

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!

Chris signature

*As measured by the Vanguard Total Short-Term Bond Index (VBISX)

** As measured by the DFA World Core Equity (DREIX)

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.