Control What You Can Control: How Equity Markets Reward Those Who Stay Disciplined

Long before I joined Claris, Stan Royer, co-founder and President, routinely reminded clients to control what they can control. As you may imagine, I am consistently asked by non-clients (who don’t understand the Claris methodology) what they should be doing in the market right now. As time has passed, I have become more and more fond of repeating Stan’s advice: control what you can control.

How 2020 Impacted the Markets

The last 12 months, which have to be the wildest 12 months of many of our lives, have only reinforced that simple, sound advice. At the end of March 2020, the DFA’s US Core Equity 2 Portfolio (large cap) was down nearly 26% year-to-date and the Dimensional US Small Cap Value Portfolio had declined an eye-watering 39% over the same time period. These declines took place in about 30 days, the quickest plunge into bear territory in history.

I’m not sure about all of you, but I heard exactly no one say the large cap asset class (represented here by DFA’s US Core Equity 2) would rise just under 72% from end of March 2020 to end of March 2021. Yet, that’s exactly what it did. And that small cap value asset class (represented here by DFA’s US Small Cap Value Portfolio)? Over the same time period it’s up 112%. Who could have possibly predicted that? The good news is that if we worry about controlling what we can control, we don’t need to find a crystal ball and see the future. Over the long-term, equity markets have rewarded investors who stay disciplined.

One Thing Investors Can Control

So, what can we control as investors? The first step here is to acknowledge that no one can consistently predict what the markets or the economy will do. Once this is acknowledged, one realizes that buying and selling based on the news or a tip from a friend or coworker is a surefire way to have a disappointing investment experience. Ultimately, the number one thing we need to control is our behavior. For clients of Claris, this is their most important job when it comes to their portfolios. We take care of everything else. Tax-loss harvesting? That’s on us. Dynamic portfolio rebalancing? We handle that as well. Best of all, we base our advice and decisions on evidence and math, so we are certain to control what we can control.

It seems like every 10 years or so we hear a lot of chatter of a “new normal.” As time passes, I become more and more convinced that there is no such thing as a “new normal.” There’s just normal. And that normal means there will be change, sometimes massive amounts of it. There will be crises, and sometimes they will be difficult to bear. The market will be volatile, sometimes to a degree that will make us breakout in a cold sweat. But, if we stick to an evidence-based, control what we can control mindset, we will make it through these periods of difficulty, in the markets and in life, just fine.

Contact Claris to see how our investment approach is designed to help you understand, invest and relax.

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