Quarterly Commentary: Q1 2019

What a difference a quarter can make! During the last quarter of 2018, we witnessed the return of market volatility, with equities around the globe experiencing substantial declines as the year came to a close. The hawkish actions of the Fed, along with angst over continued trade disputes and a government shutdown contributed to this notable decline.

In response, Fed Chairman Jerome Powell abruptly changed the Fed’s course in late December by reducing plans for further rate hikes and giving newly dovish overtones in his speeches about future Fed actions. This more dovish stance, along with some more encouraging economic news, gave way to an impressive rally in global equities throughout first quarter 2019.

For the three months ending March 31, 2019, the S&P 500 rose 13.65% while U.S. small cap equities (Russell 2000) erased most of its prior year decline by rising 14.58%. Real estate (REITS) saw strong gains for the quarter, moving up 15.72%. Overseas markets also participated in the rally, with the developed markets (MSCI EAFE) gaining 9.98% and emerging markets (MSCI EM) up 9.92%.

The Fed’s reversal also created an opportunity for fixed income investors, with the BarCap Aggregate up a respectable 2.94% for the quarter, and money markets (Fidelity Money Market Fund Premium Class-FZDXX) up 0.6%.


“We are guilty of ascribing far too much predictability to the unpredictable.”
– Nassim Taleb


The importance of managing emotions

In our last commentary, we cautioned against the urge to let emotions drive investment decisions when volatility reappeared in 2018. The abrupt turn of events in the markets from fourth quarter 2018 to the first quarter of 2019 is a glaring example of the danger in attempting to time markets. In less than 90 days, the S&P 500 made up nearly all of its recent decline. Those who panicked out of the markets during this volatility had virtually no time to react to the positive surprise of the first quarter, creating the perfect storm for would be market timers.

Investor’s typical idea of market timing is jumping in and out to catch market highs and lows or getting some type of premonition about future events that causes them to take action. There are also other forms of market timing. Tactical asset allocation, sector rotation, and other forms of predictive analytics performed by some individuals and investment professionals can prove to be just as futile.

The truth is, the future is not known, and there are too many variables to consider in attempting to predict. That said, the human brain is amazing at collecting data, recognizing associations and patterns, and making educated guesses. Individual investors and professionals alike are vulnerable to these natural abilities, parsing data for answers where none actually exist, and convincing themselves their market moves are grounded in sound forward-thinking data analysis.

Much time and effort is spent studying opportunities in various asset classes in an attempt to predict where the “smart money” should go in a given time period. However, the Periodic Table of Returns chart shown below demonstrates the value of staying diversified, as well as the futility of using short-term results to predict future performance.

Periodic table of returns: 2007 – 2018

Randomness of investment Returns

While pundits declared with great confidence which asset class or area of the market would be in favor going into 2018, very few predicted that short-term treasuries would outperform equities. Yet they did. What could be the cost of guessing wrong? The red number at the bottom of each year highlights the difference in return between the best and worst asset class in that year. The average of this difference in the annual performance is 37% per year, clearly illustrating the consequences of attempting to prognosticate.

Our approach to managing your investments

At Wealth Dimensions, there is a science to the methods we employ to investing. However, trying to predict short-term market or asset class movements is not one of them. Often times, doing so can prove to be far more harmful than good as evidenced above.

What are some of these basic tenets of our investment strategy? We diversify by country, as well as by investment style, whether the style is by size (small or large-cap stocks) or by orientation (growth versus value). We tend to have a bias toward value-oriented equity strategies since there is compelling data suggesting that, over time, value-oriented stocks have a higher expected return than growth stocks. At the same time, we believe small-cap stocks can provide further opportunities for relative appreciation in the long term, so we tilt client portfolios to capture this return as well.

In fixed income, our view is that a bond allocation provides downside protection of client capital, particularly in times of market turmoil. We typically invest in high-quality bond strategies, and consider certain interest rate factors in selecting the duration of this portion of client portfolios. Sometimes “cash is king”, so we will utilize money market instruments in varying degrees based on circumstances. All of these allocation decisions are tailored to each individual’s goals, risk tolerance, and time horizons.

Our disciplined long-term investment methodology attempts to take advantage of these performance divergences, steady risk-adjusted returns, and the behavior of each asset class relative to the others in an attempt to enhance return while reducing volatility over time. As part of our approach to investment management, we closely monitor your portfolio and rebalance on a periodic basis to attempt to capture dislocations between asset classes, and to ensure your investments are in line with your target asset allocation.

Through our ongoing financial planning conversations, we help you manage the dynamic circumstances of your financial lives, recalibrating tax and estate planning strategies, and other aspects of your plan. In this process, we listen carefully for any changes in your goals, objectives, and personal life circumstances. Based on what we learn, we may discuss the need to adjust your investment strategy and asset allocation accordingly.

Thank you for your continued confidence in our services.


For informational purposes only. Not intended as legal or investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000.

Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.