In December 2012, we launched the Sparrow Wealth Management online vault, which provides a secure location for all of your financial, tax, and estate documents. So far, roughly 90% of our clients have logged into the vault using the username and password that we sent via email. For those of you who haven’t logged in yet, please do so soon! We need 100% adoption in order to use this vault to send your quarterly bills and reports in the very near future (eliminating the need to do this hard copy mailing), but we want to make sure that everyone is logged in and comfortable using the vault first. The vault can be located on our website (“Client Login” area) or at https://sparrowwealth.sharefile.com/.
During the past quarter, REITs performed exceptionally well, with international small stocks coming in with respectable returns also. The following chart shows the 3-month, 5-year, and 10-year performance of many DFA funds (representing different asset classes) compared to the S&P 500 Index:
Market Returns for the period ending March 31, 2014
| DFA Fund / Index | 3 Month Return | 5 Year Return* | 10 Year Return* |
| S&P 500 Index | 1.81 | 21.16 | 7.42 |
| DFA U.S. Large Value | 1.60 | 25.95 | 8.63 |
| DFA U.S. Small | 0.83 | 27.71 | 9.61 |
| DFA U.S. Small Value | 1.21 | 27.98 | 9.37 |
| DFA Real Estate (REITs) | 10.24 | 28.51 | 8.05 |
| DFA Int?l Large | 0.87 | 15.86 | 6.67 |
| DFA Int?l Large Value | 1.08 | 17.28 | 7.41 |
| DFA International Small | 4.22 | 21.37 | 9.41 |
| DFA Int?l Small Value | 6.09 | 21.88 | 10.13 |
| DFA Emerging Markets | -0.27 | 15.03 | 10.84 |
| DFA 5-Year Global Bonds | 0.79 | 3.80 | 3.38 |
| DFA Inflation Protected Bonds | 1.92 | 5.12 | N/A |
*Note: Returns for periods greater than 1 year are annualized. Top 3 returns are in bold.
The first quarter was a winner, but only by a nose. The Standard & Poor’s 500 Stocks Index, a good proxy for big U.S. stocks, gained just 1.8 percent over the last three months. Our bond holdings did ok, despite all the conventional wisdom that bonds were about to plummet due to rising interest rates (so much for conventional “wisdom”: for the most part bond prices rose and interest rates fell).
Our diversified portfolios did pretty well. A stand-out performance by real estate investment trusts helped our bottom line, as did investments in small international stocks. As usual, we were buffeted by news headlines on a day-to-day basis, but none of them made a lasting impression, including the threat of renewed conflict with Russia over its annexation of the Crimea.
We are mindful that we have entered the sixth year of a bull market that began in March 2009. Although some previous bull markets lasted longer than this, we have exceeded the average length of a bull market since World War II. We don’t see any need to make any sudden shift out of the stock market, though. In the long run stocks seem to go up much more than they go down. You would have doubled your money by investing in the stocks that make up the S&P 500 Index over the last 10 years. The same investment over the last 20 years would have boosted your portfolio six times. What would have happened to that investment over the past 30 years? It would be more than 24 times bigger than your initial investment. And these are just the results for holding one investment asset class. Higher returns could have resulted from putting a portion of your portfolio into foreign stocks and real estate investment trusts. Clearly holding a diversified portfolio through thick and thin is the key to success.
We are not standing still, however. We are always checking your portfolio for rebalancing opportunities—in order to take profits on holdings that have grown and to reinvest in those that are currently cheap. We will continue to look at your portfolio throughout the year to see if it needs rebalancing. This process forces us to take profits when asset classes are up and it helps to maintain your desired portfolio risk level.
Now, in order to comply with the provisions of the Gramm-Leach-Bliley Act, we are enclosing a copy of SWM’s Privacy Statement for your review. The Privacy Act requires that we deliver this to every client on an annual basis. Also, our updated ADV Part 2 is now available on the “Regulatory Compliance” page of our website (www.SparrowWealth.com). Since there were no material changes in 2013, we will not be mailing it out, unless you request it.
Thank you for your continued trust and confidence. I had a nice visit to Pennsylvania a few weeks ago, and I have trips planned for August and October. Feel free to reach out if you need anything.
Sincerely,
About Christopher Jones
Christopher Jones is the Founder and President of Sparrow Wealth Management, a fee-only financial planning and investment management firm. Before entering the investment field, Chris was a management consultant for Deloitte Monitor. He graduated summa cum laude from Brigham Young University with a B.S. in Economics and a minor in Business Management.
