3rd Quarter 2017

The markets proved, once again, just how unpredictable they can be. Despite geopolitical turbulence abroad and political change at home, capital markets, overall, remained quite strong — from the Dow Jones crossing the 23,000 mark for the first time in history to many of the equity markets having positive returns this quarter. This resiliency reminds us that the markets’ movements cannot be accurately predicted, nor should their ups and downs come as a surprise.

The way in which the markets’ directions, yet again, did not sync with common expectations or predictions only further affirms our philosophy and the work we do — why we focus on designing a plan that withstands the test of time.

You may notice that your report this quarter features a slightly different look. We are moving to an exciting new technology platform, and this quarter’s report was generated using our new system. The new format closely replicates what you have traditionally received in the past, but you may notice a few differences. We’re confident you’ll find the report’s format familiar, but please reach out to us if you have any questions.

What’s most important is how our new technology system will allow us to communicate with you in more innovative, effective ways moving forward. It is our goal that, by the end of the next quarter, we will fulfill a long-held dream: the ability to share with you more timely and detailed information than what you’ve received in the traditional, paper-based quarterly report. You will soon be invited to a secure online portal where you can access financial information that is updated daily and benefit from some new, dynamic reporting features. We look forward to sharing more about how you can start using this portal in the coming weeks.  If you prefer to continue receiving your reports in print, please let us know.  We are continually looking for ways and methods to keep you informed of your investments in a way that you are most comfortable with.

As always, it is a pleasure to serve you. We appreciate your continued trust, and we’re excited to soon provide you with a more robust, enhanced method for sharing the information you value most.

Teresa Staker
Teresa Staker
Administrative Assistant
p // 801-494-6047

9 Reasons Investors Love Vanguard & DFA Funds

*** June 2015 article with information worth repeating***

Reposted from

Wow. Vanguard had tremendous growth in 2014. An intake of $214.5 billion last year pushed this fund giant’s total assets to $3.1 trillion as of December 31, 2014. That growth represents a 56% increase for Vanguard compared to 2013. Early this year, they passed State Street Global Advisors as the second-largest exchange-traded fund provider as they close in on the top dog BlackRock.

Dimensional Fund Advisors (Dimensional or DFA funds for short) is another fund company that has been experiencing strong inflows. DFA funds added nearly $28 billion in assets in 2014, which was the third highest dollar amount of inflows last year, trailing only Vanguard and JPMorgan Chase.

That type of growth is doubly impressive because Dimensional Fund Advisors flies under the radar of many investors. Last year’s growth, however (not to mention a relatively steady inflow of assets since its 1981 founding), makes it clear that investors are attracted to DFA. What explains its rising-rock-star appeal, given its (yawn) nerdy tagline, “putting financial science to work”? Maybe it’s the firm’s laser-like focus and steadfast approach to applying academic research into the factors or “dimensions” that are expected to generate long-term wealth – fads and fashions be damned. For this blogger, anyway, it’s hard not to prefer that level of discipline to the usual frenzy involved in active stock picking and reactionary market timing.

Then again, Vanguard’s index and exchange-traded funds are no flashes in the pan either, also built on an investment strategy of substance. Admittedly, it can be confusing at a glance to understand how these two similar, but different fund companies compare. Let’s take a closer look at nine characteristics that help differentiate them from the crowd … and from each other.


Reason 1

Both trust the market knows best.

Yes, we are all brilliant, of course. However, when you consider that in 2014 alone there were some 60 million daily worldwide trades representing more than $300 billion dollars, it may be wise to embrace market pricing instead of trying to outguess the market. Vast, real-time, electronic information makes the market a highly effective price-setting machine. Trying to consistently outguess 60 million of your fellow investors is not unlike expecting to find enough single needles to outweigh an entire haystack, and to succeed at it over and over again.

In contrast, if you invested $1 in 1927 in a U.S. large-cap index fund and let it ride, your investment would have grown to $3,955 by 2014. Not bad. Vanguard and Dimensional alike prefer to invest in market “haystacks,” albeit with some procedural differences in how the assets get bailed, so to speak.

Electronic Market


Reason 2

Both minimize trading.

Trades cost money, in both overt and clandestine ways. By trading according to plan rather than trying to time the market or jump into “hot” segments, both fund companies are well-positioned to trade less often. Since trading is expensive, we can expect lower costs with reduced drag on performance if we trade less often.

The DFA Difference

Beyond just reducing trades by avoiding market-timing or trend-chasing, DFA’s structured trading strategy is part of its secret sauce. Actually, it’s not such a secret: When it comes to trading, a trader who is in less of a rush to buy or sell can usually command better prices than one who is in a rush or under pressure to trade. By being more patient than an index fund manager can be and a market-timing manager chooses to be, Dimensional has developed a solid track record for minimizing the trading costs involved in capturing the asset class returns they are seeking.

Moreover, DFA takes it one step further and offers its funds through select financial advisors who have demonstrated a similar level of patience. The result? Less frenetic trading and even net inflows during times of market panic. For example, during the 2008-2009 market panic, most funds experienced massive redemptions, which wreaks havoc on a mutual fund management. However, DFA funds actually had net inflows during that time, and was able to put that new cash to work and buy securities at bargain basement prices. (This is a mutual fund manager’s dream!)

Patient Investing

Reason 3

Neither firm tries to guess what asset class will outperform.

Vanguard and DFA offer funds with “style purity.” They invest in the asset class they say they will–small-cap value for example–and stay there. They aren’t making any kind of tactical bets that one asset class will perform better than the other.

The chart below says it all. Each column is the year, and each colored square is a separate asset class. Follow one color, such as “red” (the S&P 500), year by year. Look how much it bounces around! The performance of each asset class each year is anyone’s guess.


Callan Periodic Table

Reason 4

They don’t keep betting on the horse that won the last race.

Another common investment mistake is to chase stocks that have been on a recent winning streak and/or abandon recent underdogs. This continues to happen, despite the volume of evidence that past performance does not inform us about future returns.

Both Vanguard and DFA do not make “bets” on individual stock performance. They simply hold a large basket of stocks that fall into their well-defined criteria (in DFA’s case) or follow a published index (in Vanguard’s case).

The DFA Difference

DFA does not invest in public indexes like most of Vanguard’s index funds. The problem with public indexes is, well, they are public; everyone knows when a public index will change (and how it will change). Stocks tend to rise when it’s announced they will be included in a public index, and index funds will buy that stock on the effective date at the higher price.

This forces the index funds to “buy high,” which is exactly the opposite of what investors should do. It’s why Dimensional can afford to trade more patiently, as described above.

Here’s a nice visual to explain the concept:

Index REconstruction

Reason 5

Both firms make “going global” easy.

Only about half of the global market’s capital is in the United States. That leaves a big opportunity set outside our borders. Moreover, many of those other countries respond differently to economic forces, which has many benefits to investors (a portfolio of investments that “zig” while others “zag” can actually increase return and lower risk).

Both firms offer funds that cover broad sectors of foreign markets, so you can easily stay globally diversified.

The DFA Difference

DFA offers foreign funds (and even emerging market funds) with higher “tilts” towards small-cap and value stocks, which have historically been a source of higher long-term returns. They also “tilt” towards companies that have exhibited higher profitability. As an asset class, these stocks also have a history of higher returns.

Global Investment Diversification

Reason 6

They help to manage your emotions.

When you are well diversified, both domestically and in foreign markets, you reduce the risk of any one investment taking a nosedive, which can be unnerving and cause you to panic if you are over-concentrated in that investment. With many of Vanguard and DFA’s funds holding thousands of individual securities, the impact of a few dogs isn’t going to hurt as much. You aren’t as likely to panic sell when you have a global back-up plan.

Take a breath. Talk to your advisor. Don’t react emotionally to a buy high and sell low outcome.

Investor emotions

Reason 7

Both firms help you to see beyond the headlines.

We are bombarded daily with catchy headlines about economic facts that seem to be on the verge of derailing our investment strategy. It’s easy to get swept into the hoopla about rising (or falling) oil prices, currency fluctuations, or political tensions in other countries. By participating in the market according to a disciplined, evidence-based process, turning to fund managers who help you accomplish that, it’s easier to take comfort in the fact that you are a long-term investor with a well-diversified global investment strategy.

Financial News

Reason 8

They help you focus on the real drivers of returns.

Many investors believe the factors that affect their returns are stock picking and market timing. In reality, the bulk of your returns are actually driven by how you decide to split your money between stocks and bonds. (Well, another huge determinant is your ability to stay the course once you build your sensible portfolio, without succumbing to your human behavioral biases, but that’s a subject for another post, such as this one.)


  • Stocks have historically offered a higher long-term return compared to bonds, but are more volatile.
  • Smaller companies have historically performed better than larger companies.
  • Value stocks have historically done better than growth companies (think WalMart vs. Groupon).
  • High-profitability companies have historically performed better than low-profitability companies.


  • Longer-term bonds have historically had higher yields compared to shorter-term bonds.
  • Lower credit quality (“junkier bonds”) have historically had higher yields compared to higher credit quality bonds.

This is an important decision, so work with your advisor to design a suitable portfolio based on these core drivers of returns.

The DFA Difference

DFA regularly and closely collaborates with academic scholars, some of whom have been awarded Nobel prizes for identifying these factors or “dimensions” of higher expected returns. As such, they have been particularly early, strong and ongoing proponents of this sort of factor-based or evidence-based investing.

DFA Financial Researchers

Reason 9

These firms help you focus on what you can control.

One of the few things you can control in investing is your costs. Both firms offer funds at significantly lower costs than many of their actively managed peers. They also offer a more disciplined approach to knowing what your own fund investments contain, so that it’s easier for you (especially with the support of an evidence-based advisor) to build and maintain a portfolio that you can stick with through thick and thin in your quest to build personal wealth. By minimizing the angst and second-guessing involved when you’re not sure just what is contained within your holdings, your own overall costs can be minimized as well.

You are in the busiest (and most profitable) time of your life. Working long hours. Struggling to figure out the best investments for your retirement. (Time, what time?) Why not work with a financial advisor who can help you clarify your goals and develop and plan to reach those goals?

An advisor will help you focus on factors you control — asset allocation, structuring a portfolio that takes into account the real drivers of expected returns and your ability to handle risk, broad diversification, low expenses, low trading costs and tax minimization.

DFA Financial Control


Both Vanguard and DFA offer low-fee funds that operate on the principle that the market is an effective, information-processing machine that is nearly impossible to outguess.

DFA takes it one step further with some distinct tactics and also allowing for “tilting” towards areas of higher expected returns like smaller stocks, value stocks and higher profitability stocks.

The growth of these firms shows that investors are waking up to the reality that investment success is about capturing global market returns and keeping costs low, not about hunting down the next “rock star” money managers.

Teresa Staker
Teresa Staker
Administrative Assistant
p // 801-494-6047
Change Jar

Investment Strategy 2nd Qtr 2016

For several years, we have experienced historically low interest rates, and for some time, the markets have expected these rates to begin rising. While such expectations get priced into current yields, markets provide no certainty that interest rates will rise at any particular time. Britain’s decision to leave the European Union only adds to the uncertainty.

When the Federal Reserve increases short-term target rates, as it did in December for the first time since 2006, there should be no expectation of an increase in all interest rates. In fact, interest rates across the yield curve have declined in 2016. The yields on five- and 10-year U.S. Treasury bonds are now at 1.0 percent and 1.5 percent, respectively, after starting the year at 1.76 percent and 2.27 percent. Global bond yields have also retreated to near historic lows. There are now 10 countries with negative five-year yields on their government debt, and more than $10 trillion of sovereign debt outstanding carries a negative yield.

Given the possible continuation of this low-yield environment, what is the benefit of fixed income in your portfolio? It’s a reasonable question, but expected return is never the only factor to consider when deciding which asset classes to include in your portfolio. Managing risk is also a key consideration, and high-quality fixed income is one of the best diversifiers of equity risk. Fixed income’s function is to provide stability by reducing total portfolio volatility.

When considering an asset class for your portfolio, it’s important to examine its volatility and how it correlates with other assets in the portfolio. When two assets are negatively correlated, it means that when one asset class has returns above its average, the second asset class will tend to have returns below its average. It is this negative correlation that provides diversification benefits. When looking at equities and fixed income, for example, we see that the monthly correlation of five-year Treasuries and the S&P 500 was negative (–0.33) over the past five years (as of May 2016).

Thanks to its diversification benefits, high-quality fixed income can help you better weather the ups and downs of the markets. So while fixed income may not currently be reaping large yields, it does play an important role in your financial plan.


Squire Wealth Advisors


BAM_ALLIANCE_logo_community_color - Blank - Adjusted

Teresa Staker
Teresa Staker
Administrative Assistant
p // 801-494-6047

Why a Millennial Prefers to Save

Why a Millennial Prefers to Save

Saving has a very positive connotation. You can save a life. In sports, you can save a game. A very admirable goal is to save the world.

However, I’ve heard many financial professionals lament how younger generations (millennials, specifically) don’t save enough money and, in turn, fail to appreciate the value of a dollar. To the extent it helps reform that opinion, here are three of the main reasons that I, a millennial, choose to save.

Future kids – Breaking news: College is expensive and student loans are out of control. But remind yourself what a college degree (and perhaps even further education) means in terms of earning power in future years. I don’t plan on having children any time soon, but when a private university over four years could cost upward of $200,000, it’s better to be prepared.

Enjoyment – In a lot of ways, saving is about opportunity cost and how much you value the pleasure of the concert/game/gadget today versus income in the future. Fortunately (or unfortunately, depending on your point of view), I have seen way too many charts and graphs showing the benefits of patient investing for the long term. It might not be the sexy thing to do right now, but my age and long-term outlook allow me to consider taking advantage of a 100 percent equity portfolio. There will come a time when, nearing retirement, I can no longer do that – and neither will you.

Social Security – I’m not a pessimistic person (although the Flyers and Eagles are pushing me there quickly), but I believe Social Security may look vastly different in 40 years. I don’t have a pension, and I have no idea how much help the government will give me when I decide to stop working. That means I’ll likely have to rely more on my personal savings, whether that’s through an employer-sponsored retirement plan (think 401(k) contributions), an IRA or a traditional investment account. The two easiest ways to combat issues related to disappearing future income are to work longer and save more. I can only do the latter for now.

Yes, saving is important. But I also subscribe to the motto of, “Do what makes you happy.” These ideas (saving and happiness) do NOT have to be mutually exclusive. If your happiness comes from buying material things, go right ahead. As long as you have enough cash to support your lifestyle, you are helping drive the American economic engine to the forefront of the world. If you find value in creating a safety net for retirement, or even in retiring earlier, saving may bring the happiness you seek.

While overspending is a natural downfall of the former philosophy, I would argue that underestimating the future benefits of saving (or a lack of knowledge regarding them) plays a large role in the decision to spend too much in the present. Happiness is hard to quantify because it is a feeling. Future benefits are equally as hard to quantify because they are based on your utility curve of happiness/consumption (if I may get a bit technical).

Not many people I know go around thinking about their marginal utility curve. But it doesn’t have to be that complicated. Simply being more informed about the benefits of saving in dollar terms will go a long way toward pushing people to adopt a long-term attitude. For example, see the chart below.

Thrive Graph

Assuming a geometric average return of 9.6 percent, starting to save $5,000 a year at age 25 instead of putting it off until you turn 30 turns into almost an additional $750,000 over a lifetime. Now, I know that not every 25-year-old, likely near the beginning of their earning potential, will be able to sock away $5,000 a year. The point is that the benefits from saving early, in whatever amount you can, compound over time.

Suddenly, I’ve found, the urge to save gets a bit stronger.

Matt Spezialetti, Portfolio Advisor, Herbein Wealth Management

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.

The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2016, The BAM ALLIANCE

Teresa Staker
Teresa Staker
Administrative Assistant
p // 801-494-6047
The Loser's Game

Emerging Markets Look Terrible — Time To Buy by Larry Swedroe, Director of Research

Glasses on newspaperFrom 2008 through 2015, the S&P 500 Index returned 6.5% per year, providing a total return of 66%. During the same period, the MSCI Emerging Markets Index lost 2.8% a year, providing a total return of -21%. It managed to underperform the S&P 500 Index by 9.3 percentage points a year, and posted a total return underperformance gap of 87 percentage points.

Not only were investors earning much lower returns from emerging market stocks, they were experiencing much greater volatility. While the annual standard deviation of the S&P 500 Index was about 21%, the MSCI Emerging Markets Index experienced volatility of about 38% a year. Not exactly a great combination—lower returns with almost twice the volatility. What’s to like?

EM Underperformance Continues

And the start to this year hasn’t been any better. The performance gap has widened a bit further as, through Feb. 24, the S&P 500 Index lost 5.3%, while the MSCI Emerging Markets Index lost 6.6%.

The comparisons get even worse if we look at the latest five-year returns. For the period ending Feb. 24, 2016, Vanguard’s 500 Index Fund (VFINX) returned 10.3% per year while its Emerging Markets Index Fund (VEIEX) lost 5.2% per year, a performance gap of 15.5 percentage points per year.

Unfortunately, it’s been well-documented that individuals have a strong tendency to invest in a manner destructive to their returns. The illustration below depicts the difference between “convex” and “concave” investing behavior.

While investors know that buying high and selling low isn’t a good strategy, the research shows that individual investors tend to buy after periods of strong performance (when valuations are higher and expected returns are thus lower) and sell after periods of poor performance (when valuations are lower and expected returns are thus higher).

Research has found this destructive behavior has led to investors managing to underperform the very funds in which they invest. What’s the explanation for this irrational behavior?

Recency Bias

Among the 77 errors discussed in my book, “Investment Mistakes Even Smart Investors Make and How to Avoid Them,” is one called “recency.” Recency is the tendency we have to overweight recent events/trends and ignore long-term evidence. This can result in behavior opposite to what a disciplined investor should be doing (rebalancing) to maintain their portfolio’s asset allocation. Disciplined rebalancing produces the concave strategy.

The problem created by recency is only compounded when emerging market stocks are the underperforming asset, because such situations greatly increase the risk that an investor will make an error. The reason for this is another of the 77 mistakes I cover. Confusing familiarity with safety can lead to a home-country bias.

Further compounding the problem is that investors tend to have short memories. For example, it wasn’t long ago that investors were piling into emerging market equities due to their strong performance.

For the five-year period 2003 through 2007, while the S&P 500 Index returned 12.8% a year, the MSCI Emerging Markets Index managed to return 37.5%, outperforming by 24.7 percentage points a year. Looking at their total returns presents an even more dramatic picture: the S&P 500 Index returned 82.9% versus 390.8% for the emerging markets index. How quickly investors forget!

Given these dramatic differences in returns, it has been very difficult for investors to stay disciplined. My message is that these types of divergences in returns are to be expected (though they happen in unexpected ways). We diversify across the globe because we don’t have clear crystal balls that can tell us which will be the best-performing countries—and neither does anyone else.

There will almost certainly be periods when U.S. stocks underperform. There will just as certainly be periods when they outperform. The key to being a successful investor isn’t, as Wall Street and much of the financial media would like you to believe, about being able to accurately forecast which asset will do well when.

Instead, it’s about remaining disciplined and adhering to your asset allocation plan. That means having the courage to rebalance to your target allocations, buying what has done poorly and selling what has done well—and that’s something a lot of investors are unable to do on their own.

Hopefully, by doing a forward-looking—instead of a backward-looking—analysis, I can help you stay disciplined.

Current Valuations And Expected Returns

The best predictors we have of future returns are current valuations. With that in mind, the table below provides the valuation metrics of VFINX and VEIEX. Data is from Morningstar as of Jan. 31, 2016.

Fund Price/Earnings Price/Cash Flow Price/Book Value Price/Sales
VFINX 16.6 9.2 2.4 1.7
VEIEX 11.4 3.7 1.3 1.1


As you can see, regardless of which value metric we look at, U.S. valuations are now much higher than emerging market valuations. Now, it’s important to understand that doesn’t make international investments a better choice. Their higher valuations simply reflect the fact that investors view the U.S. as a safer place to invest. And, as you know, there’s an inverse relationship between risk and expected returns (at least there should be).

That said, a common method used by financial economists (as opposed to methods used by gurus gazing through their crystal balls) of estimating future real expected returns is to use the earnings yield, or E/P, the inverse of the more commonly used price-to-earnings (P/E) ratio. That method produces an expected real return for U.S. stocks of about 6%, which compares with an expected real return of 8.8% for emerging market stocks.

Another commonly used metric to forecast future returns is the Shiller Cyclically Adjusted Price Earnings Ratio, or CAPE 10 ratio. This metric uses the last 10 years of earnings and adjusts them for cumulative inflation.

The S&P 500 currently has a CAPE 10 of about 24.4, producing an earnings yield of 4.1%. To adjust for the fact that real earnings grow about 2% per year over time, and that we are looking at earnings that are on average five years old, we must multiply 4.1% by 1.1—or [1 + (2% x 5)]—to arrive at our forecast of real returns of 4.5%.

So how does this compare to emerging markets valuations? At least one fund manager thinks that the recent poor performance of emerging markets has made valuations so low that they are now “the trade of a decade.”

In a post on PIMCO’s website, Christopher Brightman, chief investment officer at Research Affiliates, the sub-advisor for PIMCO’s All Asset Fund, observed that the cyclically adjusted price-to-earnings ratio fell to 10 in January. He further noted that there have been only six times when the measure has dipped below 10 over the past 25 years. In the following five years, the stocks rallied an average 188%.

Brightman then made the following important observation: “From the rearview mirror, the bear market in emerging markets has been painful. When we look out of the windshield, however, these very asset classes offer the highest potential returns available.”

Making The Case For Global Diversification

Diversification rightly has been called the only free lunch in investing. A portfolio of global equity markets should be expected to produce a superior risk-adjusted return to any one country, or region, held in isolation. However, the benefits of global diversification came under attack as a result of the financial crisis of 2008, when all risky assets suffered sharp price drops as their correlations rose toward 1.

Many investors took the wrong lesson—that global diversification doesn’t work because it fails when its benefits are needed most—from what happened. This is wrong on two fronts.

First, the most critical lesson investors should have learned is that, because correlations of risky assets tend to rise toward 1 during systemic global crises, the most important type of diversification is to ensure your portfolio has a sufficiently high allocation to the safest bond investments (investments such as U.S. Treasury bonds, FDIC-insured CDs and municipal bonds rated AAA/AA) so that your overall portfolio’s risk is dampened to the level appropriate to your ability, willingness and need to take risk.

During systemic financial crises, the correlations of the safest bonds to stocks—which average about zero over the long term—tend to turn sharply negative (the time when they’re needed most). They benefit from not only flights to safety, but also from flights to liquidity.

Second, many investors failed to understand that, while international diversification doesn’t necessarily work in the short term, it does work eventually. This point was the focus of a paper by Clifford Asness, Roni Israelov and John Liew—“International Diversification Works (Eventually)”—which appeared in the May/June 2011 edition of Financial Analysts Journal.

The Eventual Benefits Of Diversification

The authors explained that those who focus on the fact that globally diversified portfolios don’t protect investors from short systematic crashes miss the greater point that investors whose planning horizon is long term (and it should be, or you shouldn’t be invested in stocks to begin with) should care more about long, drawn-out bear markets, which can be significantly more damaging to their wealth.

In their study, which covered the period 1950 through 2008 and 22 developed-market countries, the authors examined the benefit of diversification over long-term holding periods.

They found that over the long run, markets don’t exhibit the same tendency to suffer or crash together. As a result, investors should not allow short-term failures to blind them to long-term benefits. To demonstrate this point, the authors decomposed returns into two pieces: (1) a component due to multiple expansions (or contractions); and (2) a component due to economic performance.

From there, they found that while short-term stock returns tend to be dominated by the first component, long-term stock returns tend to be dominated by the second. They explained that these results “are consistent with the idea that a sharp decrease in investors’ risk appetite (i.e., a panic) can explain markets crashing at the same time. However, these risk aversion shocks seem to be a short-lived phenomenon. Over the long-run, economic performance drives returns.”

They further showed that “countries exhibit significant idiosyncratic variation in long-run economic performance. Thus, country specific (not global) long-run economic performance is the most important determinant of long-run returns.”

For example, in terms of worst-case performances, they found that at a one-month holding period, there was very little difference in performance between home-country portfolios and the global portfolio. However, as the horizon lengthens, the gap widens. The worst cases for the global portfolios are significantly better (meaning the losses are much smaller) than the worst cases for the local portfolios. And the longer the horizon, the wider the gap favoring the global portfolio becomes.

Demonstrating the point that long-term returns are more about a country’s economic performance, and that long-term economic performance is quite variable across countries, the authors found that “country specific economic performance dominates long-term performance, going from explaining about 1% of quarterly returns to 39% of 15-year returns and rising quite linearly in time.”


We live in a world where there are no clear crystal balls. Thus, the prudent strategy is to build a globally diversified portfolio. But that’s simply the necessary condition for success.

The second part, the sufficient condition, is to possess the discipline to stay the course, ignoring not only the clarion cries from those who think that their crystal balls are clear, but also the cries from your stomach to GET ME OUT! As Warren Buffett explained, “The most important quality for an investor is temperament, not intellect.”

To help you stay disciplined and avoid the consequences of the dreaded investment disease known as recency, I offer the following suggestion: Whenever you are tempted to abandon your well-thought-out investment plan because of poor recent performance, ask yourself this question: Having originally purchased and owned this asset when valuations were higher and expected returns were lower, does it make sense to now sell the same asset when valuations are currently much lower and expected returns are now much higher?

The answer should be obvious. And if that’s not sufficient, remember Warren Buffett’s advice to never engage in market timing, but if you cannot resist the temptation, then you should buy when others are panicked and selling.

This commentary originally appeared March 2 on

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.

The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2016, The BAM ALLIANCE


Teresa Staker
Teresa Staker
Administrative Assistant
p // 801-494-6047

Two-Stage Thinking Helps Investors Weather Volatility Larry Swedroe, Director of Research

Weathering market volatility. Larry Swedroe chats with Barbara Friedberg about using “two-stage thinking” as a means to cope with turbulent markets, indexing, the “Larry portfolio” and his take on Warren Buffett’s investing arsenal in U.S. News.

Find it on

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.

The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2016, The BAM ALLIANCE

Teresa Staker
Teresa Staker
Administrative Assistant
p // 801-494-6047