Dimensional’s Takes on the Biggest Topics of 2021
Every year, Dimensional’s team of researchers and investment solutions leaders produce a range of resources and analysis to help financial professionals make smart, informed decisions around investing. This year was no different. Research conducted and perspectives shared by Dimensional in 2021 ran the gamut. From addressing the challenges of inflation and all-time market highs to ESG investing and GameStop, here is a look at some of the best original pieces published by Dimensional this year around some of the industry’s hottest topics.
The State of Inflation
Across the globe, everything screamed inflation this year, which makes it no surprise that one of the most-read pieces of 2021 on Dimensional’s Insights blog was named just that. “Everything Screams Inflation” takes a look at headlines over the past 50 years and shows the difficulty of timing markets around inflation expectations. Our Research team also published a scientific paper on the topic, “US Inflation and Global Asset Returns,” and an accompanying blog post, “Are Concerns About Inflation Inflated?”
Additional resources:
- Will Inflation Hurt Stock Returns? Not Necessarily.
- Reuters: Gerard O’Reilly—Investing When Inflation Is a Mystery
Virtual Currency, Real Intrigue
Bitcoin and related cryptocurrencies (now numbering in the thousands) are the subject of much debate and fascination. In “Tales from the Crypto,” Dimensional helps financial professionals and investors better understand how to think about bitcoin given its dramatic price changes, which have many speculating about its role in a portfolio.
Additional resources:
- To Bit or Not to Bit: What Should Investors Make of Bitcoin Mania?
- Money magazine: Billionaire Investor David Booth on Value Stocks’ Comeback and Why Bitcoin Isn’t a Bubble
Making Sense of Market Moves
Another recurring theme: market records. In “All-Time-High Anxiety,” Dimensional reminds investors that what goes up does not always come crashing down. In fact, if stocks have a positive expected return, reaching record highs with some frequency is exactly the outcome one should expect.
Additional resources:
- Missing the Market's Best Days
- Wall Street Journal: Should You Be Buying What Robinhood Is Selling? (Paywall)
Hot Stocks in the Headlines
If it wasn’t already, GameStop became a household name in early 2021 due to the stock’s significant price volatility over the course of just a few weeks. In “Think Investing Is a Game? Stop.” Dimensional Founder and Chairman David Booth reminds readers of the difference between investing and gambling. GameStop serves as a prime example of why this is so important.
Additional resources:
- Tesla’s Charge Reveals Weak Points of Indexing
- Financial Times: Gerard O’Reilly—Why Markets Are Still Efficient Even with Tesla’s Gains
The Shift to Personalization
With the evolution in wealth management toward more personalized investment solutions and Dimensional’s 2021 launch of an expanded Separately Managed Accounts offering, our Research team takes a look at one of the potential benefits of SMAs in “Why It Pays to Diversify.” Investors who hold concentrated legacy portfolios may be hesitant to transition to a broadly diversified portfolio in an SMA because of potential taxes on capital gains. The firm’s research suggests that a broadly diversified strategy with a systematic focus on higher expected returns can improve investment outcomes over the long term, despite the taxes incurred in a portfolio transition.
Additional resources:
- How Do You Measure the Impact of Personalization?
- Barron’s: Dave Butler—Are SMAs the Future of Personalized Investing?
Green Opportunities
For many individuals, aligning their values with their investment strategy is a priority, now more than ever. The challenge, however, arises in identifying the most effective way to make that happen. Dimensional dives into why sustainable investing decisions can be so difficult in “Beyond the Label, ESG Funds May Miss Their Mark,” explaining that the absence of a universally accepted definition of ESG investing has resulted in a broad array of approaches. This presents a potential dilemma for investors, as the components of ESG considered in an investment strategy, variables by which they are measured, and the method of incorporation can lead to a wide range of investment outcomes.
Additional resources:
- What Is the Social Cost of Carbon?
- Barron’s: Money Keeps Pouring Into Sustainable Funds—Even as Performance Lags
Timely Takes on Timeless Principles
Dimensional is committed to providing investors with insights they can use, from market context on noise in short-term performance and chasing the biggest stocks to the impact of government debt and trying to read the Fed’s tea leaves.
For our latest research and perspectives, visit www.dimensional.com/insights.
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