ONE FOR THE AGES

If you’re not looking at your portfolio on a weekly or monthly basis, you might be surprised to find out that November was one of the best months for a diversified stock portfolio in decades.  In the graphic below, you can see that the +15.7% return for the “Asset Class Mix” was the 2nd best monthly return for the diversified portfolio since 1995.  November, in terms of stock returns, was certainly “one for the ages.”

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There are a few important lessons from November that need to carry us forward in future quarters and years.  

First, the best overall returns come during periods of maximum uncertainty.  The highest monthly return for the Asset Class Mix in over 25 years came in April of 2009, immediately after the stock market bottomed from the real estate crisis in 2008 (and months before the economy began to turn around).  The 3rd best month was earlier this year, in April, immediately after the government announced nationwide lockdowns to “address” the spread of Covid-19.  In November, we saw the most contentious and talked-about election in recent memory.  I heard from several clients who wondered if we should sell all our stocks and wait for the political environment to settle down.  Acting on this urge, which I didn’t allow anyone to do (nor did I allow anyone to bail out in March), would have been disastrous — missing out on a +15.7% gain would have cost you almost 1.6% per year in returns over the next decade!  The most important time to stay committed to your portfolio is when things seem most uncertain, because we are often on the cusp of a surprisingly good recovery.

Second, don’t count out parts of your portfolio that haven’t been doing well lately.  Investors who have been frustrated by lackluster returns from value, small cap, and international stocks in recent years will be comforted by the results in November.  While US large growth stocks did well — the S&P 500 gained +11%, US and international large and small value stocks all did much better.  Of note, US small cap value also had its second-best month in over 25 years, gaining +17.9%.  International large value stocks did even better, gaining +19.2%.  This is why rebalancing is essential to long-term success, you have to maintain consistent exposure to your core investments so that when they surge, you receive the full amount of the returns you deserve.

It’s comforting to see in such an extraordinary year that core investment principles continue to work — having an investment plan that is appropriate for your long-term goals, staying committed to that plan even when short-term results are disappointing, and rebalancing periodically to make sure your portfolio doesn’t become too lopsided and risky.  And once again, we are reminded that the key to successful investing is extreme patience and discipline.  

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Source of data: DFA ReturnsWeb

Asset Class Mix = 21% S&P 500 Index, 21% DFA US Large Value Fund, 28% DFA US Small Value Fund, 18% DFA Int’l Value Fund, 12% DFA Int’l Small Value Fund, rebalanced annually

Past performance is not a guarantee of future results. Index and mutual fund performance includes reinvestment of dividends and other earnings but does not reflect the deduction of investment advisory fees or other expenses except where noted. This content is provided for informational purposes and should not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services.