Quick, what’s your best guess on how the US stock market has performed since 1926? Or, what do you think: Did emerging markets or the S&P 500 Index offer higher returns from 1988–1997? We can find answers to these and countless other returns-related questions in a jiffy by referencing Dimensional Fund Advisors’ annual “Matrix Book.”
While we might now take for granted our ability to reference and compare global market returns ranging from sweeping to specific, it hasn’t always been that way. Before the 1960s, there was no consensus on how to calculate compound rates of return, nor any databases for storing the results – not until the computer came along and, with it, the University of Chicago’s Center for Research in Security Prices (CRSP) database.
Even with these advances, exploring returns-related questions would still be a lot harder were it not for Dimensional’s annually updated Matrix Book. At a glance, its pages and pages of matrix-formatted numbers remain daunting. But to us evidence-based advisors, they offer a treasure trove of historical data. While the future is never guaranteed, the information helps us in our mission to separate fleeting fads and fashions from robust sources of expected returns. This helps us structure portfolios designed for patient investing in ever-restless markets.
During the next few weeks, we’d like to share three short videos featuring important insights we can draw from those unassuming numbers found in Dimensional’s Matrix Book 2016 (based on 2015 year-end data).
This first video explores some interesting questions about why we invest in the market to begin with, what history has to say about investing in areas that have exhibited higher expected returns, and how maintaining a diversified mix can help minimize the related risks.
Matrix Book Lessons from 2015: Premiums
As you’ll see in the video, 1966–1982 happened to be a particularly tough time for the S&P 500 Index; it actually underperformed T-bills across those 17 years. But there were parts of the U.S. stock market that did substantially better during that same timeframe. Which one(s), by how much, and what does this mean to our portfolio decisions? Check out the video to find out.
PS: Did we leave you wondering about the answers to our opening questions? Had you invested $1 in the US market in 1926 and let it roll, it would have grown to $4,384 by year-end 2015, with a compound rate of return of 9.8 percent. And for the decade 1988–1997, the MSCI Emerging Markets Index returned 18.2 percent, while the S&P 500 Index returned 18.1 percent.
SAGE Serendipity: Hallelujah, there are now 72 new emoji in the world. These include 4 new flatbread, 3 shrimp, and 3 bats. Emoji are approved by the Unicode Consortium’s Unicode Technical Committee. They are the committee that standardize how visual symbols are encoded into text. Visit vice.com to see The 72 New Emoji, Ranked. Just think of the possibilities for your future texts!