Dimensional Founder and Executive Chairman, David Booth, discusses the lessons from 2019 investors can apply to 2020.

I have worked in finance for over 50 years, and it seems that every January the same thing happens. Lots of folks look back at last year’s performance to draw conclusions they can use to predict what markets will do in the year to come. I don’t make predictions, but I do think it’s worth answering this question: What are the lessons from 2019 that we can apply to 2020?

Let’s go back to where we were this time last year. The words running across CNBC’s home page were, “US stocks post worst year in a decade as the S&P 500 falls more than 6% in 2018.” The Wall Street Journal summarized the state of market affairs with this headline: “U.S. Indexes Close with Worst Yearly Losses Since 2008.” Amidst gloomy predictions for 2019, I posted a video on the limitations of forecasting.

Things felt ominous. We started the year with a lot of anxious people. Some decided to get out of the market and wait for prices to go down. They thought that after 11 years, the bull market was finally on its way out. They decided to time the market.

We all know what happened. Global equity markets finished the year up more than 25% and fixed income gained more than 8%.

Missing out on big growth has as much impact on a portfolio as losing that amount. How long does it take to make that kind of loss back? And how is someone who got out supposed to know when to get back in?

The lesson from 2019 is: The market has no memory. Don’t time the market in 2020. Don’t try to figure out when to get in and when to get out—you’d have to be right twice. Instead, figure out how much of your portfolio you’re comfortable investing in equities over the long-term so you can capture the ups and ride out the downs. A trusted professional can help you make this determination, as well as prepare you to stay invested during times of uncertainty.

Not enough “experts” subscribe to this point of view. They’re still trying to predict the future. You’ve probably heard the saying, “The definition of insanity is doing the same thing over and over again and expecting a different result.” I’ve been seeing people make this same mistake for 50 years.

We’ll never know when the best time to get into the market is because we can’t predict the future. And if you think about it, that makes sense. If the market’s doing its job, prices ought to be set at a level where you experience anxiety. It’s unrealistic to think the market would ever offer an obvious time to “get in.” If it did, there would be no risk and no reward.

So what should you do in 2020? Keep in mind 2019’s most important lesson (which is the same lesson from every year before): Stay a long-term investor in a broadly diversified portfolio. Reduce your anxiety by accepting the market’s inevitable ups and downs. Make sure the people advising you align with your perspective. Stop trying to time the markets, and you’ll find you have more time to do the stuff you love to do.

David Booth

Executive Chairman and Founder

Dimensional Fund Advisors

St. Louis Magazine spoke with Matt Hall for “8 ways to make 2020 your best year ever.” If you are trying to save, should you buy the latte? See his answer to that and more.

Read the full article.

With the year coming to an end, you’ll likely see dozens of articles suggesting ways to reduce your taxes and improve your portfolio. If you’ve been engaged with our newsletter for a while, you know we favor making regular tweaks throughout the year to minimize taxes and maximize total return over the long-term. That said, we love a good tip or trick just as much as the next guy, so we’ve compiled a few of our favorites you can implement in December to help reduce your tax bill in 2019.

INCREASE YOUR RETIREMENT PLAN CONTRIBUTIONS

The maximum amount you can contribute to an employer retirement, such as 401(k), is $19,000 for 2019. If you are age 50 or older, you can take advantage of an additional “catch-up” contribution of $6,000. Likewise, you can contribute a maximum of $6,000 to an IRA with an added $1,000 if you are 50 or older. Generally, you have until December 31, 2019, to contribute to an employer retirement plan and until April 15, 2020, to contribute to an IRA.

If you are self-employed, you may want to consider establishing an individual 401(k). The plan must be established and partially funded before year-end and should be done under the guidance of a CPA.

USE HSA TO PLAN FOR FUTURE HEALTH CARE COSTS.

For those with a high deductible health insurance plan, you are eligible to contribute up to $3,500 and $7,000 for families in 2019 ($8,000 if you are age 55 and over) to a Health Savings Accounts. Similar to a 529 plan, contributions made to an HSA grow tax-free and withdrawals used to pay for qualified medical expenses are also tax-free.

FUND A 529 EDUCATION SAVINGS PLAN

Contributions made to a 529 plan grow tax-free and withdrawals made for qualified education expenses are also tax-free. You can give up to $15,000 per beneficiary each year ($30,000 from a married couple) without filing a gift tax return. With some restrictions, it is possible to give more with “superfunding” (5 years at one time.)

DONATE TO CHARITY USING APPRECIATED STOCK

If you itemize on your tax returns, giving away appreciated stock allows you to not only deduct the full market value of the donation but also avoid paying capital gains on that appreciation. If you make donations on a regular annual basis but do not qualify to itemize, you may consider putting several years of gifts in a donor-advised fund. This may allow you to itemize your deductions in the current year while maintaining control over the specific timing of your donations to qualified charities over time.