Dimensional’s Takes on Industry Topics in 2024
Every year, Dimensional produces a range of resources to help people make smart, informed decisions. Here’s a look at some of 2024’s most popular takes.
Every year, Dimensional produces a range of resources and analysis to help financial professionals and individual investors make smart, informed decisions. In 2024, we conducted research and shared perspectives directly connected to happenings around the world, from the US presidential election to changing interest rates. And with the continued growth of systematic strategies, we also shared insights into some of the potential shortcomings of indexing and how Dimensional seeks to add value to the investment experience.
Here is a look at some of the most popular Dimensional takes from the year.
Elections
More than 70 countries held national elections this year. For many financial professionals and investors, the potential impact of these elections—particularly the 2024 US presidential election—remained top of mind for much of the year.
During an August webcast, Dimensional’s Mark Gochnour and Jake DeKinder discussed how elections impact financial markets, looking at market returns back to 1926 to show investors there’s no direct correlation between returns and which political party holds office. A special interactive blog post, “Bulls, Bears, and Ballots: When Looking at Politics and Markets, Think Long Term,” took a more in-depth look at stock return data to illustrate that the political party in power has not been a reliable indicator of market performance.
In an op-ed for the Financial Times, Dimensional Founder David Booth encouraged investors to “Vote with Your Ballot, Not Your Life Savings,” reminding people that election outcomes are just one of many inputs that can impact stocks and bonds. The main takeaway for investors? Look past elections and stick to your long-term investment plan. In the long run, human ingenuity spurs innovation, no matter what politicians do.
The Fed’s Impact
The US Federal Reserve held rates steady in the first half of the year, followed by consecutive rate cuts in September, November, and December. Dimensional reminded investors not to get caught up in Fed watching because markets are forward-looking.
In “Don’t Get Fed Up,” Dimensional’s Wes Crill highlighted evidence showing that markets may move ahead of the Fed because markets are continually processing information that might factor into Fed decisions. And in “Don’t Get Fed Up: Part 2,” Crill noted that even perfect foresight of what the Fed will do may not tell you how the bond market will react.
With expectations of rate cuts for the first time in four years, some investors wondered what was in store for small cap stocks, which are often perceived to be more sensitive to interest rates than large cap stocks. In “Rate Sensitivity ≠ Price Predictability,” Dimensional showed that this relationship hasn’t exactly panned out over time. Why? Because the market’s expectations for interest rates and their impact on cash flows for small cap companies are incorporated into current market prices.
Go Beyond Indexing
This year, Dimensional Founder David Booth penned a reflective essay, “1971: The Beginning of a New Way to Invest, Based on Science,” touching on why he’d rather be an investor in 2024 than in 1971. Innovations over the past 50-plus years have helped expand investment options, making them more transparent and more affordable.
Booth, who helped create one of the first-ever index funds in the early 1970s, pointed out that while index investing revolutionized the industry, it is not without limitations. Namely, index funds are created to match a benchmark, rather than beat it. This unnecessarily rigid approach, he said, shortchanges the investor and can leave money on the table.
Additionally, Dimensional’s Research team dived into some of the hidden costs of index-tracking funds in the piece “Index Reconstitution Costs Continue to Add Up for Index Strategies.” And in the Barron’s op-ed “It’s Time to Rethink Index Funds. They Could Be More Active than Investors Think,” Dimensional’s Marlena Lee encouraged investors to take a closer look at their index fund if they are investing in it for its passive, low-cost approach. She challenged investors to consider the hidden costs of indexing, as well as whether an index really represents the market. Not all indices are created equal, she warned, and it is important to think carefully about whether decisions by index providers align with a person’s financial objectives.
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