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Don’t Let Talk of Market Cycles Take You for a Ride

KEY TAKEAWAYS Many investors inform their sentiment about markets by looking for cycles in returns. Rolling returns give a false sense of cyclicality because of overlap among consecutive periods. Investors should avoid basing market expectations on this illusion of predictability. Investors can be both motivated and well-equipped to see patterns in stock returns. Motivated, because successfully predicting market movements can be lucrative, and well-equipped, because evolution has programmed humans to err on the side of seeing patterns even when they’re
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Investing Through Emotions

Rising inflation, interest rate movements, ongoing trade wars, COVID-19 variants, bear market predictions, the Russian attack on Ukraine and heightened geopolitical uncertainty, …that’s a lot to think about. The first quarter of 2022 reminds us all how much uncertainty can fill the world at any given moment— and how little control we have over it all. This perceived lack of control can lead to feelings of anxiety and stress in our everyday lives. One of the best coping techniques is
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Volatility Lessons: Should We Expect More Market Declines?

The S&P 500 ® Index recently completed its worst 100 day run to start a year since 1970 one of many signs of a volatile market that has stressed investors. A strong gain for the index over the week ending May 27 created some breathing room from bear market territory, but investor anxiety likely remains. With continued concerns related to inflation’s impact on consumer spending and company earnings, potential effects from the Federal Reserve’s (Fed’s) rate hikes, and the oft
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Timing is Everything (if It Works)

In or Out? If your asset allocation from a week ago made sense then, what has changed to make it less appropriate today? Avoiding knee-jerk reactions in these scenarios is usually the prudent course. To help quell the fears of those still tempted to temporarily take risk “off the table,” we ran a few experiments to help demonstrate why staying the course has historically been shown to be a good option. It is good to remember that for any market
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Singled Out: Historical Performance of Individual Stocks

KEY TAKEAWAYS Single stocks have a wide range of returns. Only about a fifth of stocks survive and outperform the market over 20-year periods. They delist at a high rate, even those that have been around for a long time and have outperformed the market for 20 years. The chance of any single stock outperforming the market in the future is not meaningfully different when conditioning on its past performance. Many investors end up holding large concentrated positions in single
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Surprisingly Benign: How Stocks Respond to Hikes in Fed Funds Rate

On May 4, the US Federal Reserve increased the target federal funds rate(1) by 50 basis points as part of what the central bank said will be a series of rate increases to combat soaring inflation in the US. Some investors may worry that rising interest rates will decrease equity valuations and therefore lead to relatively poor equity market performance. However, history offers good news: Equity returns in the US have been positive on average following hikes in the fed
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Broker/Advisor Outperformance?

Can an individual broker/advisor and their team consistently deliver outperformance? Perhaps we can look to the mutual fund industry for the answer. Afterall, individual brokers/advisors and their teams are essentially a smaller version of larger active mutual fund managers. Both are looking to deliver outperformance through specific stock picking and market timing. Each year, Dimensional analyzes returns from a large sample of US-based mutual funds. The objective is to assess the performance of mutual fund managers relative to benchmarks.* This
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Series I Bonds Paying 9.6% and Their Role in a Portfolio

This May, the U.S. Treasury will announce new Series I Savings Bonds will earn a healthy 9.6% annualized rate. This very attractive yield has generated a good number of questions about the use of Series I Savings Bonds. To answer them, we first need to understand what these securities are and how they work. Series I Savings Bonds are issued by the U.S. Treasury and earn interest for 30 years that is federally taxable but exempt from any state or
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Should You Chase Dividend Stocks to Combat Inflation and Rate Hikes?

KEY TAKEAWAYS With inflation at its highest level in decades and the US Federal Reserve raising interest rates, investors may be wondering whether they should devote more of their portfolios to dividend-paying stocks. There’s no strong evidence that dividend stocks have delivered superior inflation-adjusted performance during periods of high inflation or rising interest rates. Investors can put themselves in a better position to achieve their financial goals by staying disciplined, diversifying broadly, and considering strategies designed to outpace or hedge
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All Eyes on the Fed? A Look at Federal Funds Rate, Bond Return, and Term Premium

KEY TAKEAWAYS The prospect of an increase in the federal funds rate has raised questions about future bond performance for some investors. Our analysis of global government bond data from 1984–2021 shows no reliable relation between past changes in the federal funds rate and either future bond excess return over cash or future term premiums. We can target higher expected returns by dynamically varying a strategy’s duration decision based on current term spreads across global yield curves. US consumer prices
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