Since the beginning of the COVID outbreak of March 2020, a huge influx of government spending and an accommodating federal reserve (low-interest rates) have been beneficial for our investment portfolios. However, the same policies have contributed to increased inflation throughout 2021 and 2022 and the subsequent market uncertainty we have seen so far this year. Over the past month (ending as of the writing of this blog on 1/25/2022), the US market indices have plummeted with the S & P 500 index down ~10% and the NASDAQ index down over 15%.
Fortunately, your HDR portfolio strategy has done an excellent job in weathering this most recent storm. The average balanced portfolio model of 50-60% equity is down only about 3% over the same period of time (1 month trailing as of 1/25/22) - of course, portfolios more heavily weighted towards stock funds are down a bit more. Although it is clear that portfolios with reduced equity exposure (as compared to the aforementioned stock indices) should do a better job weathering stock market declines, there are also other factors involved that have been effective in addressing risk.
Our focus on DFA (Dimensional Fund Advisors) within your portfolio has certainly contributed to mitigating recent declines. As you may recall, DFA’s research is consistent with our investment philosophy of over-weighting your portfolio towards more value-oriented, profitable, and dividend-paying companies over more aggressive, growth-oriented and speculative positions. Although this strategy may lag growth stock over other periods of time, extensive research supporting our approach has provided enhanced relative returns over longer-term time periods (source: DFA research & Morningstar).
Regardless of the headlines of the day and the uncertainty of future events, we will always take a goals-based approach. Understanding what your money must do for you to meet your specific growth and income goals while minimizing overall risk has and will always be our approach to managing your portfolio.