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What History Tells Us About Elections and the Market

Investors often wonder whether the market will rise or fall based on who is elected president. The data show that capturing the long-term returns of the capital markets does not depend on which party controls the White House. In a recent webcast, Dimensional’s Mark Gochnour and Jake DeKinder offered lessons from history.

Election Year Politics and Stock Market Forecasts

A recent New York Times article discussed the stock market impact of Joe Biden winning the 2020 presidential election. The article quoted Lori Calvasina, head of US equity strategy at RBC Capital Markets, who said “The market is starting to worry that Trump will not be re-elected. Trump is consistently viewed as a positive for the stock market.” Before you make changes to your portfolio as a result of these predictions, consider the following three points: 1. Markets have already
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How Real Is Post-Pandemic Inflation Risk?

Governments around the world have made unprecedented efforts to support the global economy in response to COVID-19 by increasing spending and getting cash into the hands of both consumers and companies. Steps taken thus far may well have been necessary to help fight the pandemic’s economic fallout – but at what cost? Pundits are starting to point their collective finger at a potential dramatic increase in inflation, which is the idea that currency depreciates – buys less – as time
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When It’s Value vs. Growth, History Is on Value’s Side

There is pervasive historical evidence of value stocks outperforming growth stocks. Data covering nearly a century in the US, and nearly five decades of market data outside the US, support the notion that value stocks—those with lower relative prices—have higher expected returns. Recently, growth stocks have enjoyed a run of outperformance vs. their value counterparts. But while disappointing periods emerge from time to time, the principle that lower relative prices lead to higher expected returns remains the same. On average,
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Investing is Simple, but Not Easy

The academic literature on investing is filled with hundreds of anomalies. My own view is that the greatest anomaly of them all is that while investors idolize Warren Buffett, the “Oracle of Omaha”, so many not only tend to ignore his advice but often do the exact opposite. Consider the following advice he has offered on trying to time the market: – In his 1991 annual letter to shareholders, Buffett advised: “ We continue to make more money when snoring
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Under the Macroscope: When Stocks and the Economy Diverge

How can investors make sense of the apparent disconnect between stock market performance and economic indicators? Do you find it puzzling when a bleak economic report emerges from the press, only to be accompanied by a positive surge in the stock market? You’re not alone. The last few weeks have produced many examples of a stark contrast between stock market performance and economic indicators. So why the apparent disconnect? Markets are forward-looking, meaning current asset prices reflect market participants’ aggregate
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The Bumpy Road to the Market’s Long-Term Average

Since 1926, the US stock market has rewarded investors with an average annual return of about 10%. But it’s important to remember that returns in any given year may be sky-high, extremely poor, or somewhere in between. Annual returns came within two percentage points of the market’s long-term average of 10% in just six of the past 94 years. Yearly returns have ranged as high as up 54% and as low as down 43%. Since 1926, annual returns have been
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History Shows That Stock Gains Can Add Up After Big Declines

Sudden market downturns can be unsettling. But historically, US equity returns following sharp downturns have, on average, been positive. A broad market index tracking data since 1926 in the US shows that stocks have tended to deliver positive returns over one-year, three-year, and five-year periods following steep declines. Cumulative returns show this to striking effect. Five years after market declines of 10%, 20%, and 30%, the compounded returns all top 50%. Viewed in annualized terms across the longest, five-year period,
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What Do You Do When Markets Are Down? Build Wealth!

It never feels great to see the stock market drop, especially by a lot, and then watch as your portfolio’s value falls with it. Fear, frustration, anger, anxiety, helplessness – each is a totally understandable and even appropriate response. But all circumstances, no matter what part of life they touch, come with context. And nothing about the context surrounding current market events happens to change what you can and cannot control. At an elemental level, for instance, we have no
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February Planning Action Items

Review your W2 and 1099s with your Independent CERTIFIED FINANCIAL PLANNER TM. Your 1099s and W2s provide valuable information about your earnings and investing habits. If your salary has increased, have you also increased your savings and investment rates? Apply income/salary to living expenses, and bonuses and stock options proceeds to retirement goals. If your mutual funds made sizable capital gains distributions, would you be better off holding low cost, tax-managed institutional funds in your taxable account(s)? Bump up contribution rates
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