Are You an Above Average Driver?

Bill Parrott |

Several studies have shown most people consider themselves to be an above average driver.  In some studies, the percentage of people who think they are above average is as high as 93%, a mathematical impossibility.[1]  You’ve seen the driver darting in and out of traffic trying to find the fast lane only to catch up to them a few miles down the road stuck behind a slow-moving eighteen-wheeler.  As you pass Speed Racer you smirk because you know the law of averages are in your favor when driving on a crowded highway.  

With the recent rout in the bond market I’ve talked to several investors questioning the wisdom of owning bonds during a rising interest rate environment.  These investors want to move their money to the hot sector.  They’re not alone as individuals have been selling bond funds by the billions and buying hot sector funds like financials and industrials.  I talk to them about the value of diversification and how over the long term it will be their best friend.  Trying to find the fastest moving sector is like finding the fast lane on the freeway.    It’s important to own a diversified portfolio so you can take advantage of all sectors and markets.

With the election in our review mirror experts are talking about finding the right stock in the right sector.  The professionals are telling clients to reposition their accounts so their investments will benefit from Trump’s policies.   These sage investors are looking for the fast lane on the highway. 

Is there a better way for you to take advantage of this investor traffic jam?   Can you find a highway with nothing but open road in front of you?  Can you lower your stress level by discovering the road less travelled?  The answer is yes.

Here are three diversified Dimensional mutual funds that can help drive your portfolio.

·         Dimensional U.S. Large Cap Value Fund (DFLVX).

·         Dimensional U.S. Small Cap Fund (DFSTX).

·         Dimensional International Value Fund (DFIVX).

An equal weighted investment in these three funds delivered an average annual return of 9.15% for the past twenty-two years.  A $30,000 investment in this three-fund portfolio in 1994 would have grown to $206,000 on October 31, 2016.[2]

How about the hot sector?  If you only owned these three funds, would you have been driving on the wrong side of the road?  Would you have missed the best sectors?  No.  These three funds own over 2,800 securities covering every investment sector. 

Two of the sectors currently generating the most attention because of the election result are financials and infrastructure.   These three funds currently have 22.5% of their holdings invested in financial companies.  Their current allocation to financials gives you exposure to 630 companies.   The allocation to industrials is 13.75% which means you own 385 stocks in this sector.

It would be awesome to always travel in the fast lane but it’s not possible besides it causes a lot of stress and road rage.   The same is true with investing.  Trying to always find the fastest stock or sector is extremely challenging and taxing.  Your road to financial harmony may be lined with a few low-cost index funds.

Americans will put up with anything provided it doesn't block traffic. ~ Dan Rather.

Bill Parrott is the President and CEO of Parrott Wealth Management.

November 28, 2016

Note:  Past performance is no guarantee of future results.  Your individual results may vary.




[1] May 1, 2015 by Robert Barsocchini.


[2] Morningstar Office Hypothetical Tool.