posted on January 26th 2024 in Financial Planning & Market Commentary with 0 Comments /

Everyone I’ve been speaking with lately agrees that 2024 has hit with a bang and everyone seems to be very busy. Thankfully, it seems that it’s a good-busy with family, work, travel, and projects. The double-edged sword of a relaxing holiday season is coming back and trying to get back into the groove which can sometimes be a struggle.

It’s moments like these that remind us that we can’t do it all ourselves. Well, we could try, but we’d be miserable. So, I thought I’d share a couple of resources for busy people as a small reminder and refresh of some positive things you can do to help you with your busy lives.

I’ve shared two resources but looked at many more. The common theme in all of the recommendations appears to be outsourcing. In order to be able to embrace the important aspects and moments of your life, you absolutely need to know how to outsource otherwise those important life-moments will pass you by. As we get older I think we fully understand that time is our most precious resource.

Who to outsource to is a very important decision and obviously you need to find folks that are trustworthy and add-value. Getting good financial advice is no different. WorthPointe published a nice eBook The 8 Critical Questions You Need Answered To Find A Financial Advisor You Can Trust” and the themes involved are applicable for any trusted outsourcing that you incorporate into your life such as:

  • Do they have relevant licenses and credentials recognized as industry standards?
  • Are their values and approach aligned with yours?
  • Are their business interests aligned with you both conceptually and contractually? (check for conflicts of interest)
  • Do they have a good reputation and have there been any relevant legal or criminal actions against them?
  • Do you like working with them and are they good at communicating?

Hopefully this message will help you frame your goals and actions for the coming year and you’ll have both a productive and fulfilling 2024.

2023 Review

I have some great insights and resources for this article. As you read through the information it’s a nice exercise to put yourself back in time on January 1 2023 to try to see if you envisioned any of the outcomes that occurred. I think you’ll mostly find that you’ll reaffirm that we just can’t predict the particular market cycles that will occur on any given year and it’s important to align your investment strategy with such variables as:

  • When will you need your funds? (Time horizon)
  • Constructing a portfolio that addresses both potential opportunities and risks
  • Acknowledging that short term trends do not necessarily align with long term data
  • Having peace of mind with your strategies.
  • Aligning your values and life/retirement goals from a holistic planning perspective?

Global Equities Takeaways

  • Equities performed very well in 2023
  • U.S. equities represented by the Russel 3000 index performed the best
  • Moving forward, it may be developed international or emerging markets that do better than the U.S. markets thus the importance of global diversification.

Past performance is no guarantee of future results. Market returns are derived from the stated index. Global Equity Market weights are based on Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. Fixed Income Market weights are based on Bloomberg US Aggregate Bond Index component of the Bloomberg Global Aggregate Bond Index. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2024, all rights reserved. Bloomberg data provided by Bloomberg. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.

Global Premiums Takeaways

  • Investment premiums (small, value, profitability) were mixed 
  • Portfolios tilted towards these premiums in the U.S. and Developed ex U.S. saw underperformance vs a traditional market weighting
  • Portfolios tilted towards these premiums in Emerging Markets saw outperformance vs a traditional market weighting
  • These annual results have not changed the fact the these premiums have existed in long term data

Past performance is no guarantee of future results. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), Developed ex US Stocks (MSCI World ex USA IMI Index [net div.]), Emerging Markets (MSCI Emerging Markets IMI Index [net div.]). Market Returns are computed from index published security weights, Dimensional computed security returns and Dimensional classification of securities based on size, value, and profitability parameters. Within the US, Large Cap is defined as approximately the largest 90% of market capitalization in each country or region; Small Cap is approximately the smallest 10%. Within the non-US developed markets, Large Cap is defined as approximately the largest 87.5% of market capitalization in each country or region; Small Cap is approximately the smallest 12.5%. Within emerging markets, Large Cap is defined as approximately the largest 85% of market capitalization in each country or region; Small Cap is approximately the smallest
15%. Designations between value and growth are based on price to book ratios. Value is defined as the 50% of market cap with the lowest price to book ratios by size category and growth is the highest 50%. Profitability is measured as operating income before depreciation and amortization minus interest expense scaled by book. High profitability is defined as the 50% of market cap with the highest profitability by size category and low profitability is the lowest 50%. REITs and utilities, identified by GICS code, and stocks without size, relative price, or profitability metrics are excluded from this analysis. GICS was developed by and is the exclusive property of MSCI and S&P Dow Jones Indices LLC, a division of S&P Global. Countries not in the Dimensional investable universe are excluded from the analysis. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2024, all rights reserved.

Returns By Country

  • The U.S. was by no means the only country with provided robust returns which illustrates the value of global diversification 
  • Many investment strategies are only invested in the U.S. or over weighted in the U.S. and thus many opportunities are missed

Past performance is no guarantee of future results. Country returns are the country component indices of the MSCI All Country World IMI Index for all countries except the United States, where the Russell 3000 Index is used instead. Global is the return of the MSCI All Country World IMI Index. MSCI index returns are net dividend. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. MSCI data © MSCI 2024, all rights reserved.

The “Magnificent 7” Dominated The U.S. Stock Market

  • A new posse rode through town in 2023; The Magnificent 7. Namely: Tesla, Meta, Alphabet, Amazon, NVIDIA, Apple, Microsoft. The chart below shows their significant contribution to the Russel 3000’s overall index return for 2023
  • Read the chart following this for perspective

Stocks with contributions less than 5 bps and greater than -5 bps are excluded from the chart. Past performance is no guarantee of future results. Returns and weights are derived from Russell 3000 Index published security weights, Dimensional computed security returns. The Magnificent 7 stocks are represented by Tesla, Meta, Alphabet, Amazon, NVIDIA, Apple, and Microsoft. This information is intended for educational purposes and should not be considered a recommendation to buy or sell a particular security. Named securities may be held in accounts managed by Dimensional. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. 

The Problem With Investing In The Largest Stocks Similar to The Magnificent 7

  • Well-known large stocks that have performed well are very enticing for investors
  • Unfortunately, this strong performance is unlikely to continue
  • In the study below these companies actually had a negative return 5 years after entering the top 10 

Past performance is not a guarantee of future results. In USD. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Data from CRSP and Compustat. Companies are sorted every January  by beginning of month market capitalization to identify first time entrants into the 10 largest stocks. Market defined as Fama/French US Total Market Research Index. The Fama/French indices represent academic concepts that may be used in portfolio construction and are not available for direct investment or for use as a benchmark. See “Index Descriptions” for descriptions of the Fama/French index data.

Morgan H Smith Jr. is an investment advisor with WorthPointe, LLC, a registered investment adviser in San Diego, Calif. WorthPointe is registered with the Securities and Exchange Commission (SEC). Registration of an investment advisor does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the commission. WorthPointe only transacts business in states in which the firm is properly registered or is excluded or exempted from registration. A copy of WorthPointe’s current written disclosure brochure filed with the SEC, which discusses among other things, WorthPointe’s business practices, services, and fees, is available through the SEC’s website at www.adviserinfo.sec.gov.

Please note, the information provided in this document is for informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs. Please refer to the disclosure and offering documents for further information concerning specific products or services.

Any hypothetical, backtested performance has been provided for illustrative purposes only, and is not necessarily, and does not purport to be, indicative, or a guarantee, of future results or the adviser’s skill. Hypothetical, backtested performance does not represent actual performance.  The results are prepared by retroactive application of a model, with the benefit of hindsight, and actual results may vary substantially. The preparation of such information is based on [UNDERLYING ASSUMPTIONS], and does not represent the actual performance of any fund, portfolio or investor, it is subject to [RISK AND LIMITATIONS] that are not applicable to non-hypothetical performance presentations. Although [ADVISER] believes any hypothetical, backtested performance calculations described herein are based on reasonable assumptions, the use of different assumptions would produce different results. For the foregoing and other similar reasons, the comparability of hypothetical, backtested performance to the prior (or future) actual performance of a fund is limited, and prospective investors should not unduly rely on any such information in making an investment decision.

Nothing provided in this document constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments. Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation or an offer to sell (or solicitation of an offer to buy) securities in the U.S. or in any other jurisdiction.

This document may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential,” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions; changing levels of competition within certain industries and markets; changes in interest rates; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of WorthPointe or any of its affiliates or principals or any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events, or any other circumstances. All statements made herein speak only as of the date they were made.

Any indices and other financial benchmarks shown are provided for illustrative purposes only, are unmanaged, reflect reinvestment of income and dividends, and do not reflect the impact of advisory fees.  Investors cannot invest directly in an index.  Comparisons to indexes have limitations because indexes have volatility and other material characteristics that may differ from a particular hedge fund.

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