Dimensional’s 2018 Market Review

25th January 2019

After a year of investment market volatility, we’ve found the insights of Dimensional’s 2018 Market Review perceptive and useful as we look back over 2018 and plan for another year. Dimensional’s straightforward approach is what makes their objective insights so appealing.

“After logging strong returns in 2017, global equity markets delivered negative returns in British pound terms in 2018.” – Dimensional Fund Advisors 2018 Market Review

The underlying message of this year’s review is this: Market volatility happens (but so do expected market returns). The fourth quarter equity market decline may have left some investors wondering how they’ll perform in the near future, but it’s noted that market declines of 10% have occurred numerous times in the past.

Come what may in 2019, your work is done if you can embrace this message here and now and proceed accordingly.

But can you? Can you stick to an investment plan you’ve already got in place to guide you through stressful times? Unfortunately, for most of us, that’s easier said than done.

“If you can sit quietly after difficult news; if in financial downturns you remain perfectly calm; if you can see your neighbours travel to fantastic places without a twinge of jealousy; if you happily eat whatever is put on your plate; if you can fall asleep after a day of running around without a drink or a pill; if you can always find contentment just where you are; you are probably a dog.” – John Kornfield, PhD, A Lamp in the Darkness

Since you are human, susceptible to the same human biases we all experience, the 2018 year in review can act as an antidote to some of the investment misgivings you may have now or in the months ahead. Armed with a clear view of the data, you’ll be in a better position to maintain your portfolio’s exposure to risks, as well as understanding the expected returns capital markets have to deliver over the long haul.

For example, take the role of diversification. While it’s a strategy that’s long been used by investors. The US stock market has delivered returns that have surpassed global equities. The figures may be causing even resolute investors to wonder: Is it still worthwhile to invest globally?

The latest report reminds of us the flip-side; the ‘lost decade’ of 2000-2009. During this period, the S&P 500 happened to deliver a negative ten-year cumulative return of -9.1%, even as cumulative international stocks were positive and emerging markets stocks shot through the roof. Not surprisingly, many investors were wondering exactly the opposite question by the end of that decade: Was is still worthwhile to invest in the US?

The difference a decade makes highlights the importance of taking short-term volatility with a pinch of salt, so to speak. Markets generally recover and the volatility seen in 2018, caused by a variety of factors, from the implementation of Brexit to the US trade war with China, is difficult to predict.

That’s market volatility for you. We cannot know which asset class will delight or disappoint next. We only know some will do better than others for a while, but in a fashion that can only be described as random. This creates an environment best addressed through global diversification, customised according to your own circumstances.

In short, in markets that can otherwise feel like bedlam, our mission and that of Dimensional’s remain aligned.

We seek to offer a consistent voice of evidence-based reason at a time when market volatility is being experienced. That’s why we’re sharing Dimensional’s 2018 Market Review with you today. It’s also why we stand by to offer tailored advice that matches your lifestyle aspirations and financial goals, even during confusing times, which in the world of investment is more often than not.

If you have any questions you would like us to answer, please get in touch.

You can read the Dimensional Fund Advisors 2018 Market Review here.