The Next Normal

A year ago, at the end of March 2020, the S&P 500 was down nearly 20%1 and the world was scrambling into lockdown. Many experts wrote articles telling us where we would be in a year. I don’t remember reading any that said the S&P 500 Index would be up 56% over the next 12 months. But that’s what happened.

I didn’t predict any of that. I never do. Last June, I spoke about the Old Normal and how we should be prepared for market downturns once or twice a decade, while accepting we just can’t know when they’ll happen. We can’t predict financial crises, but we should plan for them. That’s why I always recommend having a trusted financial advisor, a fiduciary who puts your interests first, who can help you understand the range of possible outcomes and create a plan tailored to your goals and acceptable levels of risk.

If you stayed in the market, it might be time for a victory lap. Dimensional’s US Core Equity 2 Portfolio, which holds a diversified mix of broad US equities and is Dimensional’s largest core portfolio, returned nearly 72%, as Exhibit 1 shows. Within the US market, small cap value stocks2 were among the hardest hit. Dimensional’s US Small Cap Value Portfolio was down 39% in the first three months of 2020 and subsequently returned a showstopping 112% over the next 12 months.