March investment returns are an excellent illustration of how quickly investment markets can turn in either direction. For many of the Dimensional Fund Advisors (DFA) mutual funds, the fund family that we favor, March turned out to be one of the best months of performance. However, who would have anticipated such a result looking at returns through March 9th? (See table below.)
Despite tremendous volatility, the variation in March returns was a great example of markets at work; continuously re-pricing risk as new events and information unfold. Since the future is unpredictable, so are stock prices.
We realized, however, that March’s strong finish is just part of the story. This recent gain, in the greater context of the current economy or your portfolio, may not be that big of a deal. While it feels good to see markets have a positive month, it certainly does not remove all anxiety. More importantly, these market swings serve as an important reminder of how risk and return work. Despite a tumultuous start, the month of March was one of the top 5 best months for many of the DFA funds noted above. Had the month ended on March 9th, fund performance would have resulted in one of the worst months in DFA fund return history.
What’s the Best Strategy Moving Forward?
I do not know how the market will perform moving forward. We may witness continued gains, or perhaps prices will decline. I do know that markets will quickly react to new information; just like what we experienced in March. In periods of high volatility and dispersion, a disciplined, low-cost, diversified portfolio gives investors the best chance to achieve long-term financial goals.