Thursday, March 12, 2020

Coronavirus Article #1 (from Dimensional Fund Advisors)

A Transformed Investor’s Reaction to Coronavirus

March 03, 2020
The news is full of stories about the coronavirus. It’s scary. My 10-year-old son came home from school today worried about it. We don’t know how many people this will infect, nor how it will impact the world economy. This is exactly the kind of thing that would have freaked me out 20 years ago, spiked my blood pressure, and made me glad that all my money was in cash.
Back then, I would have seen this story as yet another piece of evidence for why I chose not to invest in stocks. Because I couldn’t predict the future. “Why invest when you don’t know what is going to happen tomorrow?” I would ask no one in particular.
One of the great gifts in my life has been learning that I can still invest without needing to know what is going to happen tomorrow, because I’m a long-term investor.
It’s been 20 years since Y2K, 12 years since the financial crisis, 10 years since H1N1, and six years since the Ebola outbreak. Any money I might have invested right before Y2K (which hit on the heels of the Asian financial crisis of 1997) and left through all those ups and downs would have turned out fine—as long as I was widely diversified, with low costs.1
I don’t plan on touching the money I have in the market for 20 years. So when it’s 2040 and I look back at the coronavirus story of 2020, what will I think? Honestly, I don’t know. I gave up trying to predict the future a long time ago. But based on nearly 100 years of market data, I am choosing to be a long-term investor. I believe that the reason I get a good return over decades and not months is because markets are uncertain. If they weren’t, we’d call them a savings account. For me, riding out these ups and downs is not only one of the best ways to build a portfolio, it’s the most stress-free way of living.
I might be wrong, but decades of financial science suggest it's a sensible course, and that’s good enough for me.
  1. 1This statement assumes an investment in a broadly diversified all-equity portfolio and maintained over the specified period. Other time periods and different investments may have different results, including losses. A hypothetical dollar invested on December 1, 1999, and tracking the MSCI All Country World Index (net dividends), would have grown to $2.38 on February 29, 2020. However, performance of a hypothetical investment does not reflect transaction costs, taxes or returns that any investor actually attained and may not reflect the true costs, including management fees of an actual portfolio. Changes in any assumption may have a material impact on the hypothetical returns presented. It is not possible to invest directly in an index. MSCI index data © MSCI 2020.
Dimensional Fund Advisors LP pays Dave Goetsch for consulting services. Dimensional Fund Advisors LP does not endorse, recommend, or guarantee the services of any advisor. The experience of the author may not be representative of the experiences of other individuals. All expressions of opinion are those of the author and are subject to change. This content is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.
There is no guarantee that strategies will be successful. Investing involves risks, such as fluctuating value and potential loss of investment gains and principal. Past performance or the use of an advisor is no guarantee of future results.
The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this document are strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.
“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd, Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
This material is issued by DFA Australia Limited (AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, to the extent this material constitutes general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.
Neither DIL nor DFAL as applicable, (each an “Issuing Entity”, as the context requires) give financial advice. You are responsible for deciding whether an investment is suitable for your personal circumstances, and we recommend that a financial advisor helps you with that decision. Information and opinions presented in this material have been obtained or derived from sources believed by the Issuing Entity to be reliable and the Issuing Entity has reasonable grounds to believe that all factual information herein is true as at the date of this document.