Great quarter and year for the markets overall
Model portfolios up from 3% to 7.5% for Q4 - representing a 12% to 30% annual rate - outstanding. For the year models were up from 9% to 23% - also well above expected return. See a 4 minute video at the bottom of this post.
Our Catholic investing models were in the same ballpark, 2% to 7% for Q4 and 7% to 21% for the year 2021. These portfolios are less diversified, since some companies are screened out, and have slightly higher expenses, accounting for the slightly lower return.
See our two page performance summary for standard models here and for the Catholic models here.
A Deeper Dive
See our Quarterly Market Review here. Below are annual highlights of our standard models.
US Stocks were a big winner - and very important - because of the size of the market are carried in portfolios from 24.5 % to 67%. This is our largest holding! The Russell 3000 index was up 25.7% while our preferred fund DFQTX was up 28.5% -handily beating the Russell 3000!
Bonds were mixed - US Aggregate bonds down slightly -1.5% after big years (+9% each year) in ‘19 and ‘20. A bond winner was the US TIPS index, up 5.96% in 2021. Our clients typically carry from 10% to 20% of the DIPSX fund which was up 5.55% in 2021 - a very nice return for bonds. With interest rates about to go up - we will be reducing exposure to DIPSX and going to a shorter duration fund DFEQX.
International - favorable for our clients: Our preferred fund for developed international stocks, DFIEX, was up 13.9% vs the index at 8.2% - big beat. Emerging markets (dominated by China) had a tough year with the index at -1.5% - however - our preferred fund outperformed at +5.8% - huge beat!
Small portion of the portfolios, albeit a big winner in 2021 was Global Real Estate. up 31.4%. The US component was up 45.9%! Our portfolios typically carry about 5-6% US Reits. We use DFREX which was up 41.85% in 2021.
How did we do?
We have a biased opinion obviously. However I think the examples we provided across different asset classes were pretty impressive and show that evidence based investing as implemented by DFA and O’Reilly Wealth Advisors works well.
How about overall for 2021 and longer term? If we look at the stock or growth aspect of our investing (ignore bonds) and compare our 2021 return to a blended index - we win 23.0% to 20.6% - a significant beat! Over 23 years, 1/1/1999 to 12/31/2021, that is still a beat at 8.4% annualized return for our 100% model to the blended index at 7.8%. And given 23 years of compounding - a 0.6% win is huge.
All-Time-High Anxiety
When markets have had a great year - the typical thought is “this year may be tough sledding”. Well, we all know returns move around a lot - but when you look at the market returns after new market highs vs. after a 20% decline - the numbers will astound you. See pages 16, 17 in the Quarterly Market Review, which shows this chart:
The information which uses the S&P500 - US Large cap index that dominates the total global market - actual performs slightly better after a new high at 1, 3 and 5 years, than it does after a 20% decline. Even as someone that works with market data in copious detail - this is amazing to me. So the assumption that returns are better in recovering from a low, or continuing after a high is 100% wrong. They are essentially equal! Keep your cool! It will pay off!!
Thank you
We appreciate the opportunity to serve our growing and vibrant client base.
Cheers to a significant and meaningful 2022 in all aspects of our lives.