Ever ridden in a car with worn-out shock absorbers? Every bump is jarring, every corner stomach-churning, and every red light an excuse to assume the brace position. Owning an undiversified portfolio can trigger similar reactions.

In a motor vehicle, the suspension system keeps the tires in contact with the road and provides a smooth ride for passengers by offsetting the forces of gravity, propulsion, and inertia.

You can drive a car with a broken suspension system, but it will be an extremely uncomfortable ride and the vehicle will be much harder to control, particularly in difficult conditions. Throw in the risk of a breakdown or running off the road altogether and there’s a real chance you may not reach your destination.

In the world of investment, a similarly bumpy and unpredictable ride can await those with concentrated and undiversified portfolios or those who constantly tinker with their allocation based on a short-term rough patch in the markets.

Global equity markets advanced in December with a 2.25% aggregate return. Developed (ex US) markets (+3.23%) outperformed US markets (+1.96%) and Emerging markets (+0.35%).

In the US, small cap (+2.52%) outperformed large cap (+2.19%) and mid cap (+0.93%). Among price‐to‐book asset classes, value (+3.93%) beat neutral (+1.11%) and growth (+0.83%). Telecommunication Services (+8.11%) posted the largest return and Financials (+4.22%) made the largest contribution. Materials (‐0.65%) fell the most and was the largest detractor for the month.

In the Bond Market, Good Things Come to Those Who Wait

Last week the Federal Reserve met and decided to raise short-term interest rates by 25 basis points. This move was expected. We now know that rates will continue to rise incrementally at a higher rate than was initially expected. While this may have a negative impact on bonds in the short-term, higher rates over time allows for reinvestment at those higher rates and better returns.

Factor-Based Investing and the benefits of working with a DFA affiliated financial advisor

For years it has been assumed that you have to be either an active or passive investor. It is also assumed (depending on which camp you’re in) that one is better than the other. In my opinion, the argument over active vs passive management can be put squarely to bed--And the answer to which investing strategy I use is...Both. This is called factor based investing and it is a strategy used by a company whose funds I use a great deal---Dimensional Fund Advisors (DFA).