Pursuing a Better Investment Experience
Here we have put together the 10 commandments to a successful investment experience:
1. Embrace Market Pricing
The market is an effective information-processing machine. Each day, the world equity markets process billions of pounds in trades between buyers and sellers—and the real-time information they bring helps set prices.
2. Don’t Try to Outguess the Market
The market’s pricing power works against mutual fund managers who try to outperform through stock picking or market timing. As evidence, only 14% of US equity mutual funds and 13% of US fixed income mutual funds have survived and outperformed their benchmarks over the past 15 years
3. Resist Chasing Past Performance
Some investors select mutual funds based on their past returns. Yet, past performance offers little insight into a fund’s future returns. For example, most US mutual funds in the top quartile (25%) of previous three-year returns did not maintain a top-quartile ranking in the following three years.
4. Take a Long-Term Approach
The financial markets have rewarded long-term investors. People expect a positive return on the capital they supply, and historically, the equity and bond markets have provided growth of wealth that has more than offset inflation.
5. Consider the Drivers of Returns
Academic research has identified these equity and fixed income dimensions, which point to differences in expected returns.
Investors can pursue higher expected returns by structuring their portfolio around these dimensions.
6. Practice Smart Diversification
Holding securities across many market segments can help manage overall risk. But diversifying within your home market may not be enough. Global diversification can broaden your investment universe
7. Avoid Market Timing
You never know which market segments will outperform from year to year. By holding a globally diversified portfolio, investors are well positioned to seek returns wherever they occur.
8. Manage Your Emotions
Many people struggle to separate their emotions from investing. Markets go up and down. Reacting to current market conditions may lead to making poor investment decisions.
9. Look Beyond the Headlines
Daily market news and commentary can challenge your investment discipline. Some messages stir anxiety about the future while others tempt you to chase the latest investment fad.
When headlines unsettle you, consider the source and maintain a long‑term perspective.
10. Focus On What You Can Control
A financial adviser can offer expertise and guidance to help you focus on actions that add value. This can lead to a better investment experience.
The returns of Dimensional indices presented herein reflect hypothetical performance and do not represent returns that any investor actually attained. Changes in the assumptions upon which such performance is based may have a material impact on the hypothetical returns presented. Hypothetical backtested returns have many limitations. Unlike actual performance, it does not represent actual trading. Since trades have not been actually executed, results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity, and may not reflect the impact that certain economic or market factors may have on the decision-making process. Hypothetical backtested performance is also developed with the benefit of hindsight. Other periods selected may have different results, including losses. There can be no assurance that Dimensional will achieve profits or avoid incurring substantial losses.
Data presented in the Growth of £1 chart on slide 5 ‘Let Markets Work for You’ is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The chart is for illustrative purposes only and is not indicative of any investment. Performance may increase or decrease as a result of currency fluctuations.
The views and opinions expressed in this article are those of the author and not necessarily those of Dimensional Fund Advisors Ltd. (DFAL). DFAL accepts no liability over the content or arising from use of this material. The information in this material is provided for background information only. It does not constitute investment advice, recommendation or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision.
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Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.