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

Need a push to give to the next generation sooner rather than later? In many cases it makes sense to give your loved ones part of their inheritance when they may value it the most – while you are still here to give it to them. Giving the annual exclusion can move significant amounts of money from inside your estate to your beneficiaries outside your estate. Below is a crude example showing the power of this simple planning idea: 

John & Jane have 3 married children and 9 grandchildren:

Gifts to children/spouses per year: $180,000 ($15,000/person * 2 (John & Jane) * 2 (child and spouse) * 3 sets of children)

Gifts to grandchildren: $270,000 ($15,000/person * 2 (John & Jane)

Over 20 years, assuming no change in the annual exclusion amounts, this moves $9,000,000 from inside John & Jane’s estate to outside their estate. Assuming estate taxes are 40%, this saves $3,600,000 in taxes. It also gives children/grandchildren funds much earlier, allowing the gifts to be acknowledged, discussed, and put to use during one’s lifetime.

For more information on gift taxes, visit the IRS page here or connect with a member of our Hill Investment Group team to discuss.

As we set our vision to 2020, we’re energized thinking about the year ahead and a whole new decade. We’re also fond of acknowledging what’s been accomplished. Here is our “Top Five List of 2019”. 

1.) Culture is king – St. Louis Business Journal awarded us 2nd place on their list of  “2019 Best Places to Work in St. Louis.”

2.) Take the Long View with Matt Hall launched with 12 episodes aimed at making patience and delayed gratification cool again! Check out the most downloaded episodes: 1) The Mashburns 2) David Kabiller 3) Dave Butler  

3.) Astroball – We welcomed Houston Astros President of Baseball Operations and General Manager, Jeff Luhnow, and author Ben Reiter to speak to friends in Houston about how a long view of data science and growth mindset created one of the most unlikely turnarounds in sports history. More on that here.

4.) An old friend in a new platform – This story could easily go long so we’ll bullet point it to keep it tight.

• Dimensional funds are now a part of our Hillfolio solution.
• This is special because the “mass affluent” audience didn’t have easy-access to DFA until now.
• Schwab Institutional and DFA had a history of stalled negotiations.
• Hill Investment Group was pleased to play a role in helping bring the two sides together for the benefit of the end client.

5.) We are quietly revealing a new level of service. The first rule of Hilltop is we don’t talk about Hilltop. We’ll make an exception here because it has to make our top highlights of the year. Why? For years we have been providing service to ultra-affluent families and gradually building out the offering to begin to extend it to a select group of families. Our partner, Henry Bragg, is uniquely qualified to carry the Hilltop torch. See the landing page and list of services to know more about our well-kept secret.