Journey Archives

Portfolio Allocations Matter

October 5, 2023 by Justin M. Follmer, MBA, CFP®, AIF®

If the events of 2022 and 2023 haven’t conveyed that portfolio allocations matter to investors, it’s challenging to imagine what kind of investment landscape would drive that message home. It’s incredible to think that we’re already entering the fourth quarter of 2023! Before we know it, hurricane season will be behind us, and snow will be on the horizon for our clients in the Northern and Western states. As we approach the cooler months of the year, we can’t help but reflect on the past two years and appreciate the progress we’ve made. In comparison to the turbulent investment climate of 2022, 2023 has provided a welcome break from market volatility.

Take a look at the stark differences in performance of some of the major indices as of Friday, September 22^nd as compared to their 2022 returns:¹

Index	YTD	2022
S&P 500 (Large Cap)	+13.87	-18.31
NASDAQ (Tech)	+35.23	-32.38
Russell 2000 (Small Cap)	+1.95	-20.46
U.S. Aggregate (US Bonds)	-0.43	-13.01
S&P 500 Growth-only	+18.54	-29.41
S&P 500 Value-only	+8.78	-5.25

We often describe investing as a journey with both high and low moments. The extent of these highs and lows largely hinges on the composition of one’s portfolio and the strategy adopted. Portfolio allocations matter. Unless an investor holds a passive strategy aiming to closely replicate an index, like the ones mentioned earlier, they are likely to experience wildly different results than those published.

During our review meetings, we maintain a consistent practice of evaluating clients’ actual performance against a composite benchmark. This benchmark is a blend of various underlying indices with specific weightings, designed to mirror the composition of real-world portfolios and tailored to each client’s specific requirements. For instance, when examining a 60/40 benchmark, its year-to-date return stands at a positive 5.62%, in contrast to the negative -16.47% loss experienced in 2022². This divergence in results is noteworthy when compared to the major indices mentioned earlier.

This shows that portfolio allocations matter in real-world investment portfolios. The choices made in terms of how to invest (security selection) and where to invest (such as in specific sectors, asset classes, or countries) can significantly influence the nature of one’s investment journey. Fortunately, our clients entrust us to navigate this journey and make crucial decisions about investment design and strategy. The construction of a real-world portfolio takes into account various factors, including investment costs, the economic landscape, client objectives, risk tolerance, risk capacity, time horizon, and personal preferences. Each portfolio can be as unique as the individual it’s tailored for, highlighting the beauty of personalized investing.

Because portfolio allocations matter, tailoring their design necessitates setting realistic expectations. While it may be tempting to invest in an S&P 500 ETF with the aim of replicating its historical annual returns, typically around 10%³, the real challenge lies in sticking to that strategy plus dealing with the human element of investing and our natural tendency to avoid losses and discomfort.

Can one “set it and forget it?”

Looking at the differences of the S&P 500 index above can help paint this picture. Assume an investor buys an S&P 500 ETF (ticker SPY) on Jan 1st, 2022. Also assume that no additional trading nor reinvesting of dividends occurs. As of Friday, September 22^nd 2023, this investor is still experiencing a negative return since the initial investment, despite nearly two years having passed. This hypothetical situation can be quite challenging to digest and underscores the importance of managing expectations in the realm of investing, which is just as crucial as the decision to invest in the first place. If you were this hypothetical investor who “set-it,” are you currently “forgetting it?” The answer to that is likely different for each person.

In reality, most investors don’t own just one investment but a myriad of investments they acquired over time as new money was contributed to their accounts. Human behavior is shaped by countless events, ranging from wars and recessions to business and personal triumphs, none or all may occur in any given year. The real challenge for investors lies in sifting through the overwhelming amount of information and noise generated by these events. The key question becomes: What makes up that critical percentage of information that warrants their attention and consideration?

The answer? It depends. It depends on how you’re affected by the events and how likely they are to influence your financial decisions. There’s a common saying that “the best strategy is one you’ll stick with.” Unfortunately, it’s not that easy since portfolio design has many facets to it. We explore those nuances during our onboarding process with new clients by showing them why portfolio allocations matter. We strive to uncover what they want their portfolio to accomplish and then design a specific mix of investments to help them achieve their goals. Each client is different and that’s what we value the most.

As we approach the end of 2023 and the likely challenges and volatility that lie before us, we’d welcome the opportunity to meet with you. We’re fiduciaries first and pride ourselves on being the outsourced financial planners’ and investment advisors’ that families can turn to when life becomes complicated. We take pride in being the kind of company our clients rely on when they want to discuss ideas or seek advice on a wide range of financial matters. We’re enthusiastic about the opportunity to be a valuable partner on your investment journey. You don’t need to invest alone when we’re here to help. Here’s how you can get in touch with us.

¹https://www.ftportfolios.com/Commentary/Insights/2023/9/25/week-of-september-25th

²60/40 Benchmark is a composite (blended) benchmark comprised of 38% iShares Russell 3000 Index ETF, 5% Vanguard Real Estate ETF, 9% MSCI EAFE Index, 8% iShares MSCI Emerging Markets ETF, and 40% iShares Core US Aggregate Bond Index ETF. Return calculated as of close of trading on 9.22.23.

³https://www.dimensional.com/us-en/insights/let-the-compounding-commence

Striving for Better Performance

May 3, 2022 by Justin M. Follmer, MBA, CFP®, AIF®

In striving for better performance, I often like to take a step back from the daily headlines to get a macro view of where we are and how far we’ve come year-to-date. As we enter the month of May, let’s check the pulse of the broad market indices as of 4.29.22 (source):

Dow Jones Industrial Average: -8.73
S&P 500: -12.92%
NASDAQ: -21.06%
MSCI EAFE: -12.00%
MSCI Emerging Markets: -12.15%
US Aggregate Bond Index: -9.50%

As a quick and simple refresher, the Dow is comprised of 30, mainly value oriented stocks. The S&P 500 is 505 of large cap companies with an overweight towards growth stocks. The NASDAQ is mainly growth oriented stocks while the MSCI EAFE tracks international developed stocks and the MSCI Emerging Markets tracks emerging market stocks. Lastly, the US Aggregate Bond Index tracks the performance of the total US bond market.

Notice that the year-to-date performance is negative across the board, including fixed income. The only asset class that is positive in nominal terms is cash. However, due to inflation, the real return on cash is negative as well. By “real return,” I’m referring to the purchasing power of a $1, which no longer buys the same amount of goods and services it did at the beginning of the year and can be expressed as the nominal rate minus the inflation rate.

With signs of the year-over-year growth rate of inflation possibly peaking, a Federal Reserve on a continued path towards tightening economic conditions, persistent supply chain challenges, and what is turning into a prolonged war between Russia and the Ukraine, where is an investor to turn for better performance?

Before we answer that…

In my opinion, there’s two ways to look at the notion of better performance. The first is obvious: the return must have a plus sign in front of it. You essentially end with more money than you started with. The second way is less obvious. The return is better than a benchmark return even if it still has a negative sign in front of the number. Think of the latter way as a negative result but less negative than it would be had you invested differently. It goes without saying that we naturally prefer to have positive real returns. But in some short-term periods, that won’t be the case.

Here’s a current example of better performance in two negative returning asset classes (again, as of 4.29.22):

S&P 500 Growth Index: -20.00%
S&P 500 Value Index: -5.02%

In this example, the S&P 500 Value Index is outperforming its growth counterpart by +14.98% year-to-date. In the fourth pillar of our Investment Philosophy, we actively choose to structure evidence-based portfolios for our clients by overweighting certain asset classes. One component of this is choosing to hold higher weights in value stocks over growth stocks. This strategy is performing well in the current environment even if it’s still negative, albeit, less negative than it would be if we didn’t have conviction in our investment philosophy.

This takes us back to the question at hand, where does an investor turn for better performance during these times?

We believe there’s several ways to answer this question and it depends on your individual circumstances.

First, visit the strategy you’ve implemented and try not to sell for the sake of avoiding losses; analyze and understand why you own what you own first. We’re overweight value stocks while slightly underweight international and emerging market stocks. We also favor quality and cash-flow rich companies within the portfolio. It’s important to note that this doesn’t mean avoiding growth stocks altogether since there can be pockets of better performance within that asset class as well.

Second, as interest rates rise, bond durations should remain on the shorter end of the curve. This won’t prevent negative returns for bonds, but it should dampen the impact to bond prices as interest rates rise. Floating rate bonds can also be attractive depending on individual risk tolerance and capacity.

Third, defensive sectors like consumer staples, utilities, and commodities can be attractive tactical additions to a portfolio. In our opinion, these areas can complement an existing, well-diversified portfolio but shouldn’t be the largest weights in it.

Fourth, be methodical (purposeful) in allocating new cash to investments and during rebalancing periods. Just as we do each day for client portfolios, we look for long-term value and opportunities in where we allocate cash. This approach can also manifest itself through dollar cost averaging like participants do with each payroll deferral into their employer sponsored retirement plans.

There’s no doubt that economic challenges lay ahead. We cannot predict what tomorrow will bring but we also aren’t blind to the potential risks in front of us. We don’t believe anyone can accurately—and consistently—outguess the direction of markets. For this reason, we believe constructing evidence-based portfolios that align with your tolerance and capacity for risk, your financial goals, and preferences is a better means to a positive investment experience.

We aren’t the type of firm that markets on doom-n-gloom predictions. Rather, we work with clients to identify what doom-n-gloom may look like specific to their lifestyle. No two clients are alike. We then build and manage portfolios that we believe match certain characteristics so that our clients can tolerate what the world brings their way. If the past several months have been challenging for you, get in touch with us. We’d love to show you how we help clients to see if we’re the right fit for each other.

Image Credit: Marco Verch Professional Photographer

5 Real Things + Bonus Offer you can do Right Now to Address the Coronavirus and your Investment Account.

April 1, 2020 by Justin M. Follmer, MBA, CFP®, AIF®

Here’s 5 Real Things + Bonus Offer you can do Right Now to Address the Coronavirus and your Investment Account.

As the country continues its best efforts to slow the spread of the coronavirus, it seems that everywhere you turn, you cannot help but run into some article, podcast, Facebook post, television special or Tweet about the latest COVID-19 projections. We, investment advisors, are no different. In just a quick sample of my email inbox, there isn’t a single email within the last 3 weeks that hasn’t mentioned either “COVID-19” or “Coronavirus” and how to help clients address it through their investment account. Some of the common themes among these emails include:

“Here’s our fund that has beaten the S&P 500 year-to-date.”

“Buy this leveraged ETF to protect downside risk.”

“Sell this fixed insurance product to weather the current storm.”

“We offer a suite of software solutions to address market volatility.”

And so many others…that just get deleted.

None of these would help any of my clients and they likely won’t help you either.

Here’s 5 Real Things + Bonus Offer you can do Right Now to Address the Coronavirus and your Investment Account.

#1 Don’t Sell Anything

I’m not simply repeating what all financial advisors say during this time. I’m telling you that there is far more evidence in favor of not selling than there is in support of cashing in and choosing to buy back at another point in time when things “feel safer;” take a look at returns following market drawdowns. There’s one caveat to this: if you’ve been laid off and need money to pay your bills during this difficult time, that would be a reason to choose specific positions to sell to free up cash to live from.

How does this help you? Selling for selling sake is an emotional response. Many people struggle to separate their emotions from investing making it one of the single hardest things to do as an investor. When you sell, you miss rebounds. And some of the best market days are immediately following the worst days. If you aren’t invested, you’ll lock in losses without the ability to earn gains. Stay invested unless you fall into the caveat above.

#2 Understand Why Your Account Dropped in Value

Is it just your account or is it everyone else too? You likely own several investments within your account. These investments could be in the form of a mutual fund, an exchange traded fund (ETF), or a money market fund. There are many other types, but let’s focus on those three since they are the most prevalent in the typical investment account. Each of the different positions in your investment account are designed to pursue a specific strategy outlined in its governing document. This document is called a prospectus and you received a copy of it when you first bought the fund (hint: it’s that massive book you threw out a long time ago that was too big and boring to read). This document outlines the goal of the fund and how and why it invests the way that it does. You could call the fund company and request a copy and read it as you practice social distancing -or- you can take a shortcut. Head over to www.morningstar.com and enter your fund’s ticker symbol to get some quick, current data about the fund.

Let’s use an example. One of the most popular funds widely available in company sponsored retirement plans is the Vanguard Total Stock Market Index Fund, ticker symbol VTSAX. When you enter this ticker symbol in the search bar on the Morningstar website, it produces a page that shows you how the fund is invested. In this example, it’s a mutual fund that comprises of about 3,500 companies and is designed to track the entire US Stock Market.

How does this help you? If you know that the entire US Stock Market has decreased in value over the last several weeks as a result of both market panic and expectations of the future, it stands to reason that this fund would follow that same trajectory. Having this understand of why your fund decreased in value can help bring back perspective and understanding where you may not have it. Considering looking up each fund you own to gain this perspective.

#3 Understand How Each Fund in Your Account Works Together

Now that you know how to look up each fund, considering putting them together to fully understand your account in its entirety. To do this, you may need to purchase a paid version of Morningstar (costs about $200/year but there’s likely a free trial available) so you can see how each fund interacts with the others in the account.

How does this help you? Owning one total stock market fund, for example, diversifies your risk across the entire US stock market. But you can spread this risk even further. You can add other funds to see how they may have affected the recent drop in value. By adding fixed income or alternative funds that may be uncorrelated to the stock market, you can ensure parts of your portfolio don’t drop at the same rate as the general market. This is the very definition of diversification.

#4 Determine your Risk Score

The risk tolerance questionnaires in use by many firms are antiquated. There’s no other way to state this: they are terrible and do nothing to address the actual investment account level risk. They are also easy to game in that you can look at the answers and choose the ending outcome based on the range of answers. Several years ago, I partnered with Riskalyze to offer a unique scoring method to pinpoint my client’s specific risk metric. Think of it like the Sleep Number Bed System but for your investment account: you are scored between 1 and 99.

You can score yourself here.

BONUS OFFER: For as long as South Carolina is under a COVID-19 State of Emergency, I’ll take this a step further and add your investments to the scoring system so you can see if your portfolio matches your risk score…at no charge. Send a quick email to justin@coastalwealthadvisors.com for this offer with the subject: “Limited Time Offer: Risk Matching Request.”

How does this help you? When you invest your account to match your risk score, you have a far likelier chance of staying invested while working towards your financial goals. This helps you make better investing decisions through Riskalyze’s mission: “empowering the world to invest fearlessly.”

#5 Review your Beneficiary Designations and Estate Planning Documents

An often overlooked thing about an investment account is what happens to it following your expiration. Give your custodian (the company holding your investment account) a call and ask this question: “if I die, what happens to this account?”

You may be surprised to hear that a beneficiary isn’t listed or there’s “no record available.” Paperwork at custodians gets messed up all the time; trust me, I deal with them every day. Use this time to review your Beneficiary Designations, WILLs, Healthcare Directives, and Power of Attorney appointments to ensure the correct people are listed. If not, reach out to your estate planning attorney to start the update process. If so, please be sure your documents are signed and fully executed. I can’t think of anything more unfortunate than spending thousands of dollars on an estate plan and then having unsigned estate planning documents. Unsigned documents are not executed and won’t accomplish your wishes upon your expiration.

How does this help you? Our lives change all the time and it’s important that long-term plans reflect those changes. Close family members that may be listed as a trustee or executor may not be so close now. Staying on top of these things is very important. The last thing you want to happen is the very thing you’ve planned against while having the ability to ensure it doesn’t.

During this historic time in our country where economic activity has come to a halt and when markets have struggled to find direction, it’s tough to stay motivated and focused. We hope that you can follow these 5 Real Things and take advantage of our Bonus Offer that you can do right now to address the coronavirus and your investment account.

Here at Coastal Wealth Advisors, I work with each of our clients on all the above steps – and so many more. I do all the heavy lifting for you by spending countless hours with each family to address their financial goals and risk tolerance in order to implement financial plans and manage investment accounts on their behalf. I’d love nothing more than to help you right now. I’m equipped to work virtually and am fully dedicated to helping clients through all market climates. Consider reaching out today to learn more.

Please stay safe and healthy and remember, this too shall pass.

Reliance on an Investment Philosophy

August 20, 2019 by Justin M. Follmer, MBA, CFP®, AIF®

“The important thing about an Investment Philosophy is that you have one you can stick with.”

– David Booth, Founder and Executive Chairman of Dimensional Fund Advisors

Last week markets continued their slide as investors fled equities for safer-haven assets like U.S. Treasury Bonds. The buying pressure of US Treasuries caused the interest rates on these bonds to decrease. It’s important to remember that bond prices and bond rates (also called yields) move inversely to each other; as more investors push up the price of bonds, yields will decrease. The opposite happens when investors sell out of bonds and buy equities. In spite of all of this, we believe a reliance on an investment philosophy is crucial.

What’s driving the direction of both bond and stock markets?

Two words: Tariffs, FED.

That’s been the name of the game over the last 18+ months, and at times, I feel like we are repeating the same ole song and dance.

A few months ago, the difference between the 3-month and 10-year Treasury bond yield went negative for the first time since 2007. The financial media took this as a sign of imminent recession; however, we maintained the stance that no recession was in sight. On Wednesday, August 14th, the difference between the 2-year and 10-year Treasury bond joined the 3mo/10yr in turning negative. Economists call this negative difference an inversion of the yield curve. An inverted yield curve has preceded each of the previous 7 recessions. As of my writing this, global stock markets are not taking this news lightly – mid-day Wednesday August 14th, the major US indices are down around -2.75%. However, bond markets are signaling conflicting information.

There are a few components that we are continuing to monitor that may explain this inversion and why it doesn’t necessarily spell doom.

European Economic Weakness

Germany posted its first negative GDP results (-0.1%). Recall that a technical recession is two consecutive quarters of negative GDP. This would fit the narrative of a global economic slow-down. In addition, there’s rumors of trouble with a hard-Brexit plan from the EU. Add these issues to Italian Populist Party concerns and one has the makings of trouble abroad. But the US economy, by most measures, is still relatively healthy. Last Quarter’s GDP decreased to +2.1% from 1st Quarter results of +3.1%; well within the range of GDP reports over the last 9 years.

Market Expectations of Further FED Rate Decreases

Three weeks ago, the FED reduced the Federal Funds Rate after a multi-year period of raising rates. The last increase was December ’18. At that time, I believed (and still do) that the economy did not need that final rate hike. Markets felt the same sentiment that caused the rest of December’s rapid market decline. It wasn’t until the FED signaled a cautionary policy in moving rates going forward (i.e. data dependency) that stock markets rebounded to 2019 highs between January and July. And if by political pressure, the FED essentially removed the December rate hike through its rate decrease last month. The FED called it a “mid-cycle adjustment” however, investors wanted more and still do. The question remains if the recent market turmoil and additional tariff action by the Trump Administration will force the FED to reconsider their stance. We almost have to question if one is driving the other? As of today, the bond markets are pricing in a 100% chance of another 0.25% rate cut in September. This pricing in may be the sole reason for the yield curve inversion. Remember that we believe (1st Pillar of our Investment Philosophy) all available information and expectations of the future are reflected in market prices. If investors are expecting the FED to reduce rates, it only makes sense that current rates would also decrease. Yield Curves have historically inverted due to tight monetary policy – that isn’t the case today. And why is no one talking about the $1.4 TRILLIONS of dollars in excess reserves still flooding the system? US monetary policy is not tight by our measures and some would say it’s simply, less-loose.

Why First Trust Portfolios says “This Is Not 2008”

Tariffs

The Trump Administration recently removed some tariffs and delayed others until Dec 1st. The mixed signals from President Trump explains much of the volatility in recent trading days. To say it has been whipsawed action would be an understatement. Markets were moving higher on signs of progress in trade talks with China but dropped significantly as a result of the inverted yield curve. As I’ve been meeting with clients over the last couple of weeks, I’ve explained the rationale behind why the world needs a successful trade agreement with China. To recap, I believe the global economy will benefit when trade secrets and other intellectual property are protected across country borders. These secrets are crucial to keeping capitalism and free markets alive. There remains an additional benefit to tariffs that hasn’t been discussed much – supply chain transitions to non-tariff countries. US companies with locations in China may be forced to transition their business to neighboring countries where labor costs remain low compared to the US but still comparable to China. If US corporations can strategically exit China to avoid tariffs, the Chinese economy may feel more pain than they are experiencing through a loss of jobs and tax revenue. This could be another pain point for the Chinese needed to force the US and China to meet in the middle on an agreement. The only concern I have here is whether the Trump Administration is ready to give a little ground to gain a lot of ground. If we look to President Trump’s twitter feed, I’m not certain he’s willing to capitulate on any demand. This, in my opinion, would be a mistake; negotiations become successful when two opponents meet in the middle.

Conclusion

We, as advisors, monitor these data points and concerns daily and we must remain focused, diligent, purposeful and unemotional in our approach to wealth management. Looking to the Investment Philosophy and the empirical evidence that is deeply rooted in academic science, each client’s portfolio strategy is designed with their financial goals, risk tolerance, and risk capacity in mind. For this reason, every portfolio is built with economic downturns, stock and bond market corrections in mind. It’s the primary reason we use fixed income assets to soften volatility. Recessions are a part of the economic cycle and avoiding them is not possible. It is highly provocative to imagine a strategy that gets out at the top of the markets and in at the bottom at precisely the right times. Imagine the money one could make and the emotional stress one could avoid with such a strategy? The reality is that such a strategy is impossible for humans to implement consistently and reliably and there is a plethora of data to support this impossibility.

Here’s what we will be/are doing for our clients. We believe that maintaining a consistent allocation to a globally diversified portfolio within your risk tolerance remains the most reliable method to achieving your long-term financial goals. To maintain this consistency, we rely on rebalancing techniques to keep allocations in-check as global markets move. This means that, at times, we’ll sell out of portions of one position and buy into others. We may also replace positions or add positions as necessary to take advantage of depressed prices and/or other opportunities. These actions aren’t meant to time the market, per se, but rather to ensure prudent management of our client’s investment portfolios.

Whether you’ve been a do-it-yourselfer or have been working with another financial advisor, maybe it’s time you consider a second opinion? Our phone lines are open, email inboxes properly filed and ready for your message. We’d love nothing more than the opportunity to sit down and show you why we’re different and how we believe our Investment Philosophy can help create calm during market storms.

Here’s how you can get in touch with us today.

Investment Fads

March 4, 2019 by Justin M. Follmer, MBA, CFP®, AIF®

Investment fads are nothing new. When selecting strategies for their portfolios, investors are often tempted to seek out the latest and greatest investment fads and opportunities. Over the years, these approaches have sought to capitalize on developments such as the perceived relative strength of particular geographic regions, technological changes in the economy, or the popularity of different natural resources. But long-term investors should be aware that letting short-term trends influence their investment approach may be counterproductive. As Nobel laureate Eugene Fama said, “There’s one robust new idea in finance that has investment implications maybe every 10 or 15 years, but there’s a marketing idea every week.”

WHAT’S HOT BECOMES WHAT’S NOT

Looking back at some investment fads over recent decades can illustrate how often trendy investment themes come and go. In the early 1990s, attention turned to the rising “Asian Tigers” of Hong Kong, Singapore, South Korea, and Taiwan. A decade later, much was written about the emergence of the “BRIC” countries of Brazil, Russia, India, and China and their new place in global markets. Similarly, funds targeting hot industries or trends have come into and fallen out of vogue. In the 1950s, the “Nifty Fifty” were all the rage. In the 1960s, “go go” stocks and funds piqued investor interest. Later in the 20th century, growing belief in the emergence of a “new economy” led to the creation of funds poised to make the most of the rising importance of information technology and telecommunication services. During the 2000s, 130/30 funds, which used leverage to sell short certain stocks while going long others, became increasingly popular. In the wake of the 2008 financial crisis, “Black Swan” funds, “tail-risk-hedging” strategies, and “liquid alternatives” abounded. As investors reached for yield in a low interest rate environment in the following years, other funds sprang up that claimed to offer increased income generation, and new strategies like unconstrained bond funds proliferated. More recently, strategies focused on peer-to-peer lending, cryptocurrencies, and even cannabis cultivation and private space exploration have become more fashionable. In this environment, so-called “FAANG” stocks and concentrated exchange-traded funds with catchy ticker symbols have also garnered attention among investors. And now that FAANG has had some considerable weakness during 4th quarter 2018, the next investment fad appears to be LUPA – a new acronym for 2019 IPOs of Lyft, Uber, Pinterest, and Airbnb.

THE FUND GRAVEYARD

Unsurprisingly, however, numerous funds across the investment landscape were launched over the years only to subsequently close and fade from investor memory. While economic, demographic, technological, and environmental trends shape the world we live in, public markets aggregate a vast amount of dispersed information and drive it into security prices. Any individual trying to outguess the market by constantly trading in and out of what’s hot is competing against the extraordinary collective wisdom of millions of buyers and sellers around the world.

With the benefit of hindsight, it is easy to point out the fortune one could have amassed by making the right call on a specific industry, region, or individual security over a specific period. While these anecdotes can be entertaining, there is a wealth of compelling evidence that highlights the futility of attempting to identify mispricing in advance and profit from it.

It is important to remember that many investing fads, and indeed, most mutual funds, do not stand the test of time. A large proportion of funds fail to survive over the longer term. Of the 1,622 fixed income mutual funds in existence at the beginning of 2004, only 55% still existed at the end of 2018. Similarly, among equity mutual funds, only 51% of the 2,786 funds available to US-based investors at the beginning of 2004 endured.

WHAT AM I REALLY GETTING?

When confronted with choices about whether to add additional types of assets or strategies to a portfolio, it may be helpful to ask the following questions:

1. What is this strategy claiming to provide that is not already in my portfolio?
2. If it is not in my portfolio, can I reasonably expect that including it or focusing on it will increase expected returns, reduce expected volatility, or help me achieve my investment goal?
3. Am I comfortable with the range of potential outcomes?

If investors are left with doubts after asking any of these questions, it may be wise to use caution before proceeding. Within equities, for example, a market portfolio offers the benefit of exposure to thousands of companies doing business around the world and broad diversification across industries, sectors, and countries. While there can be good reasons to deviate from a market portfolio, investors should understand the potential benefits and risks of doing so.

In addition, there is no shortage of things investors can do to help contribute to a better investment experience. Working closely with a financial advisor can help individual investors create a plan that fits their needs and risk tolerance. Pursuing a globally diversified approach; managing expenses, turnover, and taxes; and staying disciplined through market volatility can help improve investors’ chances of achieving their long-term financial goals.

Fashionable investment fad approaches will come and go, but investors should remember that a long-term, disciplined investment approach based on robust research and implementation may be the most reliable path to success in the global capital markets.

Article written by Dimensional Fund Advisors, LP with edits by Coastal Wealth Advisors, LLC.

Index

YTD

2022

S&P 500 (Large Cap)

+13.87

-18.31

NASDAQ (Tech)

+35.23

-32.38

Russell 2000 (Small Cap)

+1.95

-20.46

U.S. Aggregate (US Bonds)

-0.43

-13.01

S&P 500 Growth-only

+18.54

-29.41

S&P 500 Value-only

+8.78

-5.25

1https://www.ftportfolios.com/Commentary/Insights/2023/9/25/week-of-september-25th

260/40 Benchmark is a composite (blended) benchmark comprised of 38% iShares Russell 3000 Index ETF, 5% Vanguard Real Estate ETF, 9% MSCI EAFE Index, 8% iShares MSCI Emerging Markets ETF, and 40% iShares Core US Aggregate Bond Index ETF. Return calculated as of close of trading on 9.22.23.

3https://www.dimensional.com/us-en/insights/let-the-compounding-commence