During the past quarter, the best performing asset classes were real estate and U.S. small value stocks. The following chart shows the 1-year, 10-year, and 20-year performance of many DFA funds (representing different asset classes) compared to the S&P 500 Index:
Market Returns for the period ending December 31, 2021
|
DFA Fund / Index |
1 Year Return |
10 Year Return* |
20 Year Return* |
|
S&P 500 Index |
28.71 |
16.55 |
9.52 |
|
DFA U.S. Large Value |
28.07 |
13.76 |
9.07 |
|
DFA U.S. Small |
30.61 |
13.66 |
10.12 |
|
DFA U.S. Small Value |
39.84 |
12.54 |
10.27 |
|
DFA Real Estate (REITs) |
41.85 |
11.95 |
11.01 |
|
DFA Int’l Large |
12.81 |
8.02 |
6.47 |
|
DFA Int’l Large Value |
18.69 |
6.60 |
7.08 |
|
DFA International Small |
14.24 |
9.97 |
10.50 |
|
DFA Int’l Small Value |
15.89 |
9.13 |
10.49 |
|
DFA Emerging Markets |
2.53 |
5.52 |
9.78 |
|
DFA 5-Year Global Bonds |
-1.03 |
1.85 |
3.16 |
|
DFA Inflation Protected Bonds |
5.55 |
3.10 |
N/A |
*Note: Returns for periods greater than 1 year are annualized. Top 3 returns are in bold.
The past year has felt like both a blur and a slow crawl at the same time. The non-stop barrage of political and economic news was extremely heavy, which made it difficult for investors to maintain good behavior with their portfolios. The stock market, on the other hand, made it quite easy to hold on as the markets delivered above-average returns with only a few shallow bumps along with way. The end result: an 18.23% gain for 2021 for the global stock market*, with the U.S. doing even better.
Specifically, U.S. real estate** powered upward with a 41.85% gain, followed by U.S. small value stocks*** gaining 39.84% for the year. Bonds struggled in general as interest rates slowly crept up, which resulted in bond prices creeping down. Interest rates are expected to move higher again in 2022 with the Federal Reserve now projecting three increases in the federal funds rate for the year, although that remains to be seen.
At this time of the year we encourage you to exercise caution with all of the financial predictions that you will inevitably see. It remains impossible to predict the investment markets in the short term given all the variables that impact prices. Even if you could predict how the future will play out, you cannot predict how millions of investors will interpret the news.
Occasionally, throughout 2021, we heard concerns from clients about the stock market hitting new record highs and what that might mean for future returns. Fortunately, our friends at DFA have studied this extensively and the evidence concludes that there is no material difference in the average returns one, three or five years after the stock market hits a new high compared to the returns of periods where it started below record highs. Said another way, your expectations about future returns should not change just because the stock market is at an all-time high.
Also, we’d like to point out that 2022 is the first year using the updated IRS life expectancy factors. This means for those of you who have required minimum distributions (RMDs) the amount you are required to withdraw will be slightly lower than what it would have been if the factors had stayed the same. This is a positive development for many of our clients and should provide additional opportunities for longer tax deferral and smarter tax planning.
Lastly, we are getting to that time of the year when you need to start gathering all your tax documents. You will receive your 1099s directly from Fidelity via email, so you will need to log into the Fidelity website to download them. Please note that we do not have your 1099s. As a reminder, if you have changed your tax preparer, please fill out a new consent form so that we can request your tax returns be sent to us. If you have not provided us with a consent form or you do your own taxes, then please upload your completed 2021 tax return into the “Shared Docs” folder in your eMoney vault.
We encourage you to visit our website https://sparrowwealth.wpengine.com for ongoing commentary and timely blogs we write about the markets and other financial topics. You can also see our posts on Twitter (@sparrowwealth), Facebook (@SparrowWealthManagement), Google, and LinkedIn.
As always, please don’t hesitate to call or email if you want to discuss something. We greatly appreciate the trust you have placed in us to help guide you forward.
Happy New Year!
*As measured by the Vanguard Total Stock Market (VTWIX)
** As measured by the DFA Real Estate Securities Portfolio (DFREX)
***As measured by the DFA US Small Cap Value (DFSVX)
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.
