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Insights



The Difference Between a Forecast, a Wish, and a Worry

David Booth DFA Chairman and Founder When I was growing up, our local newspaper, the Kansas City Star, was full of news and had one page for opinion. After decades of cable news and nonstop digital postings, I see more opinions these days than news. That’s not a bad thing. But when it comes to investing, it’s crucial to remember the difference between news and opinion, and how they are sometimes used to forecast the future. Any time the government
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People Have Memories. Markets Don’t.

Start the new year off with a clean slate—just like markets do every day. One of the best things about markets is that they don’t have memories. They don’t remember what happened last week or last year. They don’t even remember what happened a minute ago. Prices change based on what’s happening right now and what people think will happen in the future. People have memories. Markets don’t. And that’s a good thing. So as you start 2023, take a
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The Rewarding Distribution of US Stock Market Returns

Annual stock market returns are unpredictable, but “up” years have occurred much more frequently than “down” years in the US. That may be reassuring to investors, especially if they find market downturns unsettling. The US stock market posted positive returns in 75% of the calendar years from 1926 through 2021. The market gained an annualized average of 10.2% during this period. Yet nearly two-thirds of yearly observations were at least 10 percentage points above or below the average. Another noteworthy
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Markets Don’t Wait for Official Announcements

Some investors may worry about the stock market sinking after a recession is officially announced. But history shows that markets incorporate expectations ahead of economic reports. The global financial crisis offers a lesson in the forward-looking nature of the stock market. The US recession spanned from December 2007 to May 2009(1), as indicated by the shaded area in the chart. But the official “in recession” announcement came in December 2008—a year after the recession had started. By then, stock prices
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Elect to Leave Your Portfolio Alone

On November 8, US voters will cast their ballots for all 435 seats in the House of Representatives and 35 seats in the Senate. Many investors are concerned with the effect of election results. Do past results suggest a useful strategy to deal with election-year uncertainty? The answer is yes. For the 96-year period ending in 2021, the S&P 500 Index (with dividends reinvested) posted an average return of 12.33% for all calendar years and results were negative in roughly
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Understanding Emotions During Volatile Markets

Anger is a helpful emotion. We are angry when we see a person abused, and that anger compels us to intervene, helping the abused. But anger can be harmful when it compels us to say what we will soon regret, such as insulting a friend. We cannot learn to eliminate anger, but we can learn to control it through cognitive reflection. We can follow our parents’ advice: “Count till 10 when you are angry before you speak.” Fear and Hope
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Active Management Hasn’t Shined in Volatile Markets

Many investors have likely heard the adage that active management performs better in times of market turbulence. This may sound like an emotional hedge for market stress akin to betting against your favorite sports team to balance an adverse outcome with financial compensation. However, a historical analysis of active US-domiciled equity funds finds no meaningful relation between market volatility and managers’ success rates; the implication is that traditional active investments may compound your concerns during times of market uncertainty. The
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What Happens When You Fail at Market Timing

The impact of being out of the market for just a short period of time can be profound, as shown by this hypothetical investment in the stocks that make up the Russell 3000 Index, a broad US stock market benchmark. A hypothetical $1,000 investment made in 1997 turns into $10,367 for the 25-year period ending December 31, 2021. Over that same period, if you miss the Russell 3000’s best week, which ended November 28, 2008, the value shrinks to $8,652.
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So What’s Your Plan for the Bear Market?

A lot of people are stressed out about a lot of things right now. Markets are down. Prices are up for many of the things you need to buy. Interest rates are rising and make it a confusing time to consider buying or selling a house, or making other major financial decisions. This all adds to the stress you may be feeling about your job, the ongoing pandemic, and the health of loved ones. If you’re stressed out about what
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Panic Is Not a Strategy–Nor Is Greed

If markets are good at one thing, it’s reminding investors that stock prices don’t simply go up, uninterrupted, forever. I have updated this report several times since it was initially published in 2008; it’s undoubtedly obvious why I’m doing so again. I do not have a crystal ball and they don’t ring a bell at market tops or bottoms. It’s not what we know, or you know, about the future (path of the stock market) that matters. It’s what we
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