5 Steps to Investment Success
If you're looking for a simple understanding of how to create a comprehensive investment plan, look no further than this five step guide:
Step 1: Embrace Market Pricing
The market is an effective information-processing machine. Each day, markets process billions of dollars in trades between buyers and sellers—and the real-time information they bring helps set prices.
Step 2: Don't Try to Outguess the Markets
As evidenced by the fact that less than ¼ of all equity mutual funds beat their benchmark over a 20 year period, the market’s pricing power works against managers who try to outperform through stock picking or market timing.
Step 3: Structure Your Portfolio Using Financial Science and Empirical Data
Academic research has identified these dimensions, which are well documented in markets across the globe and across different time periods.
Step 4: Diversify
We never know which asset classes will outperform from year to year. By holding a well diversified portfolio, we are well positioned to seek returns wherever they occur.
Step 5: Breathe Easy...This Stuff Works!
1: In US dollars. Source: Dimensional, using data from Bloomberg LP. Includes primary and secondary exchange trading volume globally for equities. ETFs and funds are excluded. Daily averages were computed by calculating the trading volume of each stock daily as the closing price multiplied by shares traded that day. All such trading volume is summed up and divided by 252 as an approximate number of annual trading days.
2 :The sample includes funds at the beginning of the 10-, 15-, and 20-year periods ending December 31, 2018. Survivors are funds that had returns for every month in the sample period. Winners are funds that survived and outperformed their benchmark over the period. US-domiciled open-end mutual fund data is from Morningstar. Past performance is no guarantee of future results.
3: Represents cumulative total returns of a balanced strategy invested on the first day of the following calendar month of the event noted. Balanced Strategy: 12% S&P 500 Index, 12% Dimensional US Large Cap Value Index, 6% Dow Jones US Select REIT Index, 6% Dimensional International Value Index, 6% Dimensional US Small Cap Index, 6% Dimensional US Small Cap Value Index, 3% Dimensional International Small Cap Index, 3% Dimensional International Small Cap Value Index, 2.4% Dimensional Emerging Markets Small Index, 1.8% Dimensional Emerging Markets Value Index, 1.8% Dimensional Emerging Markets Index, 10% Bloomberg Barclays Treasury Bond Index 1-5 Years, 10% FTSE World Government Bond Index 1-5 Years (hedged), 10% FTSE World Government Bond Index 1-3 Years (hedged), 10% ICE BofAML 1-Year US Treasury Note Index. Assumes monthly rebalancing. For illustrative purposes only. S&P and Dow Jones data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. ICE BofAML index data © 2019 ICE Data Indices, LLC. FTSE fixed income indices © 2019 FTSE Fixed Income LLC. All rights reserved. Bloomberg Barclays data provided by Bloomberg. Dimensional indices use CRSP and Compustat data.