During the past quarter, the best performing asset classes were international large value, international small and small value stocks. The following chart shows the 3-month, 1-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, 2022
| DFA Fund / Index | 3 Month Return | 1 Year Return | 20 Year Return* |
| S&P 500 Index | 7.56 | -18.11 | 9.80 |
| DFA World Core Equity | 11.72 | -14.82 | N/A |
| DFA U.S. Large Value | 14.05 | -5.78 | 9.63 |
| DFA U.S. Small | 10.12 | -13.53 | 10.49 |
| DFA U.S. Small Value | 13.45 | -3.52 | 10.61 |
| DFA Real Estate (REITs) | 3.93 | -24.96 | 9.21 |
| DFA Int’l Large | 17.21 | -13.03 | 6.57 |
| DFA Int’l Large Value | 19.26 | -3.48 | 7.37 |
| DFA International Small | 17.61 | -17.12 | 9.37 |
| DFA Int’l Small Value | 19.29 | -9.78 | 9.61 |
| DFA Emerging Markets | 10.07 | -16.88 | 9.31 |
| DFA 5-Year Global Bonds | 0.74 | -6.63 | 2.30 |
| DFA Inflation Protected Bonds | 1.99 | -12.22 | N/A |
*Note: Returns for periods greater than 1 year are annualized. Top 3 returns are in bold.
Stocks and bonds recovered some ground in the final quarter of the year as the global stock market** rose by approximately 10% and the US bond market* increased by 1.65%. Specifically, developed international stocks led the way with US small cap value and US large cap value not far behind. Investors were relieved to see several measures of inflation cooling, which led to the belief that the Federal Reserve may finally take their foot off the pedal after a torrid pace of raising interest rates in 2022.
The economy is continuing to digest higher interest rates in an impressive fashion as indicated by US GDP (gross domestic product) growing by 3.2% in the third quarter and the job market adding 263,000 jobs in November with a 3.7% unemployment rate. Those numbers generally do not coincide with an economic recession, but it feels as if every market commentator is predicting a recession for 2023 at this point.
Fortunately, we know that predictions about the markets and the economy are useless from an investment perspective. We also know that a potential recession is already “priced in” to today’s current stock market values, thus the reason for the 18% decline in the global stock market** in 2022. This isn’t to say prices can’t go lower, but more to point out that investors have already accounted for a potential slowdown. The market moving news will be the unexpected surprises that we don’t yet know, as it always has been.
Congress recently passed the SECURE 2.0 Act as part of a federal spending bill. Major changes that may impact you are:
- Required minimum distributions (RMDs) will now start at age 73 (beginning 1/1/23) and will move to age 75 (beginning 1/3/33).
- The penalty for missing your RMD drops from 50% of the required RMD to 25%. Also, if your RMD is corrected in a timely way, then the penalty drops to 10%.
- Starting in 2024, RMDs will no longer be required from Roth accounts in employer plans like 401ks.
- Employers will be able to offer employees the option of receiving their matching contributions to Roth accounts (rather than having to make them in pre-tax accounts).
We will be going over these changes as we meet with clients over the next year to review the impact and plan accordingly.
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 2022 tax return into the “Shared Docs” folder in your eMoney vault.
As you may have heard, Naz and I have moved our primary residence to Orlando, Florida. We are very excited to stay in a warm climate, live less than an hour from the beach, and benefit from lower tax rates! We will both continue to work from our home offices, but our new business mailing address will be:
Sparrow Wealth Management
6900 Tavistock Lakes Blvd, Suite 400
Orlando, FL 32827
Our business and cell phone numbers will stay the same for now, but we will alert you if they change in the future.
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 Vanguard Total Bond Market (VBTLX)
**As measured by Vanguard Total Stock Market (VTWIX)
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.
