fbpx

Monthly Archives: August 2018

Saving for Retirement

 

How much should you save for retirement? Marlena Lee, PhD, discusses important factors that can help you meet your goals, like determining your savings rate, monitoring your progress, and making adjustments over time.

 

 


Have Questions?

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

This video is for Informational purposes only and is an authorized reprint from Dimensional Fund Advisors LP (“DFA”). Larson Financial Group (“LFG”) and Larson Financial Securities (“LFS”) are separate from and unaffiliated with DFA. LFS has entered into a selling agreement with DFA whereby LFS may sell and receive compensation for the sale of DFA funds. Material is believed current and accurate but is not guaranteed. Retirement plans are subject to various market, political, currency, economic, and business risks, and may not always be profitable; further, neither LFG nor LFS guarantee financial or investment results. This material is not to be construed as an offer to buy or sell securities or other products and services of LFG or its affiliates. Before taking action on a financial plan, please review any offering documents available, including prospectus and consult an appropriate investment professional regarding your specific needs. Past performance is not an indicator of future results.

The Tao of Wealth Management

July 13, 2018

Jim Parker, Vice President
DFA Australia Limited, a subsidiary of Dimensional Fund Advisors LP

The path to success in many areas of life is paved with continual hard work, intense activity, and a day-to-day focus on results. However, for many investors who adopt this approach to managing their wealth, that can be turned upside down.

The Chinese philosophy of Taoism has a phrase for this: “wei wu-wei.” In English, this translates as “do without doing.” It means that in some areas of life, such as investing, greater activity does not necessarily translate into better results.

In Taoism, students are taught to let go of things they cannot control. To use an analogy, when you plant a tree, you choose a sunny spot with good soil and water. Apart from regular pruning, you let the tree grow.

This doesn’t mean that we should always do nothing. In fact, insights from financial science suggest you should direct your investment efforts to the things you can control. These include taking account of your own preferences and sensitivities when choosing investment strategies, diversifying your allocation to moderate the ups and downs, being mindful of the impact of fees, and exercising discipline when emotions threaten to blow you off course.

Successful investing requires taking actions that can have a positive impact on the outcome. For instance, to maintain their desired asset allocation, investors should regularly rebalance their portfolio by reallocating money away from strongly performing assets.

But rebalancing is a disciplined, premeditated activity based on each person’s circumstances. It contrasts with the “busyness” of reflexively following investment trends and chasing past returns promoted through financial media. Look at the person who fitfully watches business TV or who sits up at night researching stock tips. That sort of activity is likely counter-productive and can add cost without any associated benefit. With investing, constantly tinkering with an allocation does not perfectly correlate with success.

Now, while that makes sense, many people struggle to apply those principles because the media tends to look at investing through a different lens, focusing on today’s news, which is already priced in, or on speculating about tomorrow. Guesswork can surely be interesting. But is it relevant to your long-term plan? Probably not.

People caught up in the day-to-day may constantly switch money managers based on past performance,or attempt tactical changes in their allocation, or respond in a knee-jerk way to news events that turn out to be noise.

Again, the assumption underlying these approaches is that if you put more effort into the external factors and adjust your position constantly, you will get better results. Unfortunately, people may end up earning poorer long-term returns from trading too much, chasing past performers, or attempting to time the market. Ultimately, that’s just another reminder of the potential benefits available to disciplined investors who stay focused on what they can control.

As the ancient Chinese proverb says: “By letting it go, it all gets done. The world is won by those who let it go. But when you try and try, the world is beyond the winning.”

Are you ready to talk over your wealth management strategy?

Past performance is not a guarantee of future results. There is no guarantee investment strategies will be successful. Investing involves risks including possible loss of principal. Investors should talk to their financial advisor prior to making any investment decision. Diversification does not eliminate the risk of market loss.
All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investors should talk to their financial advisor prior to making any investment decision.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.
This handout is for Informational purposes only and is an authorized reprint from Dimensional Fund Advisors LP (“DFA”).
Larson Financial Group (“LFG”) and Larson Financial Securities (“LFS”) are separate from and unaffiliated with DFA. LFS has entered into a selling agreement with DFA whereby LFS may sell and receive compensation for the sale of DFA funds. Material is believed current and accurate but is not guaranteed.
Investments are subject to various market, political, currency, economic, and business risks, and may not always be profitable; further, neither LFG nor LFS guarantee financial or investment results.
This material is not to be construed as an offer to buy or sell securities or other products and services of LFG or its affiliates. Before taking action on a financial plan, please review any offering documents available, including prospectus and consult an appropriate investment professional regarding your specific needs. Past performance is not an indicator of future results.

E+R=O, a Formula for Success

Combining an enduring investment philosophy with a simple formula that helps maintain investment discipline can increase the odds of having a positive financial experience.

“The important thing about an investment philosophy is that you have one you can stick with.”

-David Booth Founder and Executive Chairman

 

AN ENDURING INVESTMENT PHILOSOPHY

 

Investing is a long-term endeavor. Indeed, people will
spend decades pursuing their financial goals. But being
an investor can be complicated, challenging, frustrating,
and sometimes frightening. This is exactly why, as
David Booth says, it is important to have an investment
philosophy you can stick with, one that can help you
stay the course.

This simple idea highlights an important question:
How can we, as investors, maintain discipline through
bull markets, bear markets, political strife, economic
instability, or whatever crisis du jour threatens progress
towards our investment goals?

Over their lifetimes, investors face many decisions,
prompted by events that are both within and outside
their control. Without an enduring philosophy to inform their choices, they can potentially suffer unnecessary
anxiety, leading to poor decisions and outcomes that
are damaging to their long-term financial well-being.

When they don’t get the results they want, many
investors blame things outside their control. They might
point the finger at the government, central banks,
markets, or the economy. Unfortunately, the majority
will not do the things that might be more beneficial—
evaluating and reflecting on their own responses to
events and taking responsibility for their decisions.

 

e + r = o

 

Some people suggest that among the characteristics
that separate highly successful people from the rest
of us is a focus on influencing outcomes by controlling
one’s reactions to events, rather than the events
themselves. This relationship can be described in
the following formula:

 

e + r = o (Event + Response = Outcome)

 

Simply put, this means an outcome—either positive
or negative—is the result of how you respond to an
event, not just the result of the event itself. Of course,
events are important and influence outcomes, but not exclusively. If this were the case, everyone would
have the same outcome regardless of their response.

Let’s think about this concept in a hypothetical
investment context. Say a major political surprise,
such as Brexit, causes a market to fall (event). In a
panicked response, potentially fueled by gloomy media
speculation of the resulting uncertainty, an investor sells
some or all of his or her investment (response). Lacking
a long-term perspective and reacting to the shortterm
news, our investor misses out on the subsequent
market recovery and suffers anxiety about when, or
if, to get back in, leading to suboptimal investment
returns (outcome).

To see the same hypothetical example from a different
perspective, a surprise event causes markets to fall
suddenly (e). Based on his or her understanding of the
long-term nature of returns and the short-term nature
of volatility spikes around news events, an investor is
able to control his or her emotions (r) and maintain
investment discipline, leading to a higher chance of
a successful long-term outcome (o).

This example reveals why having an investment
philosophy is so important. By understanding how
markets work and maintaining a long-term perspective
on past events, investors can focus on ensuring that
their responses to events are consistent with their
long-term plan.

THE FOUNDATION OF AN
ENDURING PHILOSOPHY

An enduring investment philosophy is built on solid
principles backed by decades of empirical academic
evidence. Examples of such principles might be:
trusting that prices are set to provide a fair expected
return; recognizing the difference between investing
and speculating; relying on the power of diversification
to manage risk and increase the reliability of outcomes;
and benchmarking your progress against your own
realistic long-term investment goals.

Combined, these principles might help us react better
to market events, even when those events are globally
significant or when, as some might suggest, a paradigm
shift has occurred, leading to claims that “it’s different
this time.” Adhering to these principles can also help
investors resist the siren calls of new investment fads
or worse, outright scams.

THE GUIDING HAND OF A TRUSTED ADVISOR

 

Without education and training—sometimes gained
from bitter experience—it is hard for non-investment
professionals to develop a cogent investment
philosophy. And, as we have observed, even the most
self-aware find it hard to manage their own responses
to events. This is why a financial advisor can be so
valuable—by providing the foundation of an investment
philosophy and acting as an experienced counselor
when responding to events.

Dimensional has an enduring investment philosophy
that is shared by the advisors we work with and is the
foundation for how we view the world of investing.
We trust in the power of markets to deliver reliable
returns over time and focus our efforts on helping
investors benefit from as much of the return of the
market as possible.

We know that investing will always be both alluring and
scary at times, but a view of how to approach investing
combined with the guidance of a professional advisor
can help people stay the course through challenging
times. Advisors can provide an objective view and help
investors separate emotions from investment decisions.
Moreover, great advisors can educate, communicate,
set realistic financial goals, and help their clients
deal with their responses even to the most extreme
market events.

In the spirit of the e + r = o formula, good advice, driven
by a sound philosophy, can help increase the probability
of having a successful financial outcome.

Have Questions?


Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Past performance is no guarantee of future results. There is no guarantee investment strategies will be successful. Investing involves risks including possible loss of principal. Investors should talk to their financial advisor prior to making any investment decision. There is always the risk that an investor may lose money. A long-term investment approach cannot guarantee a profit.

All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.


Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

This handout is for Informational purposes only and is an authorized reprint from Dimensional Fund Advisors LP (“DFA”). Larson Financial Group (“LFG”) and Larson Financial Securities (“LFS”) are separate from and unaffiliated with DFA. LFS has
entered into a selling agreement with DFA whereby LFS may sell and receive compensation for the sale of DFA funds. Material
is believed current and accurate but is not guaranteed. Investments are subject to various market, political, currency,
economic, and business risks, and may not always be profitable; further, neither LFG nor LFS guarantee financial or
investment results. This material is not to be construed as an offer to buy or sell securities or other products and services of
LFG or its affiliates. Before taking action on a financial plan, please review any offering documents available, including
prospectus and consult an appropriate investment professional regarding your specific needs. Past performance is not an
indicator of future results.