Dimensional Founder and Chairman David Booth recently contributed an op-ed to Fortune about the role uncertainty can play in investment success. Click continue reading to view the op-ed.
CONTINUE READING
Print
Email
Russell’s annual reconstitution took place last week, and one of the notable additions to the Russell 3000 Index was Dell. Some investors may be confused as to why the stock of a company with a household name and a $98 billion market value was not already part of this broad US stock market index. Dell was dropped from the index during the 2023 reconstitution due to Russell’s eligibility rules. Its reinstatement in 2024 signals it once again checks the box for inclusion.
Russell 3000 Index fund investors may be more interested in Dell’s performance during its one-year exile. During the stretch between Russell’s 2023 and 2024 reconstitution events, Dell’s stock posted a cumulative total return of 177.5%—more than seven times higher than the Russell 3000 Index.
This is another example highlighting how index rules and procedures can drive a wedge between what the market offers and what index fund investors receive, particularly if the process is conducted only once a year, as is the case for Russell indices.
CONTINUE READING
Print
Email
Whether you’ve been investing for decades or are just getting started, at some point you’ll likely ask yourself some fundamental questions. The 10 listed here highlight key principles, backed by data and common sense, that can help improve your odds of investment success.
CONTINUE READING
Print
Email
Many investors view government debt as a concern for future market returns. The long-run data suggest country debt-to-GDP has not been correlated with stock market returns. This is likely because debt tends to be a slow-moving variable that investors can observe and account for when setting prices. Markets do not react to circumstances; they react to news. If the government debt is not news, it’s unsurprising it’s not a headwind to stock markets.
Sometimes, however, markets are greeted with news about a government’s fiscal outlook. France’s President Macron recently called for a snap, or unscheduled, parliamentary election. This election opens the door to policy changes that would substantially increase government spending deficits. In the span of just a few days, the cost of sovereign debt relative to peers—represented by the yield spread between French and German bond yields—increased by more than half, from 0.49% to over 0.75% by June 18.
Markets continuously and instantaneously process new information. That’s what makes them so difficult to outguess. But investors can take comfort in the forward-looking nature of markets. Once changes in circumstances are reflected in prices, investors should expect positive returns, regardless of the outcome of elections.
CONTINUE READING
Print
Email
Investors selecting funds based on dividend yield should be aware that high yield is no assurance of higher expected return. Plotting 10-year annualized returns vs. average dividend yield for US large-cap equity funds shows no meaningful relation between the two. Many of the best-performing funds in the category had below-average yields. And funds specifically targeting high yield can be found on both ends of the return spectrum.
A stock’s total return comprises both capital appreciation and dividends. Emphasizing only one component may reduce diversification and, as the data show, may not increase your expected return.
CONTINUE READING
Print
Email
