By Wes Crill, PhD, Dimensional Fund Advisors
There’s a great exchange in the original (animated) Transformers movie where two Autobots are attempting to navigate an obstruction set by their nemesis, the Decepticons. The Autobot Kup says to his friend Hot Rod, “The Insecticons are in our way,” to which Hot Rod responds, “Wrong – they’re our way in.”¹ A simple rearranging of words reframed the situation from plight to opportunity.
Investors could benefit from similarly reframing the way they think about uncertainty. This unavoidable aspect of life is often interpreted as a pejorative: “I’m concerned about the political situation or economic outlook and what will happen with my portfolio.” In this view, uncertainty is seen as a threat to one’s invested wealth.
The other side of the argument is that risk and return are related. Bearing the risk of uncertainty is why you get paid a return to be an equity shareholder. And the equity premium is a necessary component for many investors to grow savings to the level needed to eventually retire. So, rather than focus on the potential for market downturns, which tend to be temporary anyway, investors should focus on the long-term benefits of embracing uncertainty.
1. For anyone not familiar with Transformers lore, Autobots are the protagonists, Decepticons the antagonists, and Insecticons bug-like creatures that consume standing structures. Not a footnote I expected to write in this newsletter.
Disclosures
All expressions of opinion are subject to change. This information is not meant to constitute investment advice, a recommendation of any securities product or investment strategy (including account type), or an offer of any services or products for sale, nor is it intended to provide a sufficient basis on which to make an investment decision. Investors should consult with a financial professional regarding their individual circumstances before making investment decisions.
Risks include loss of principal and fluctuating value.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
Investment products: • Not FDIC Insured • Not Bank Guaranteed • May Lose Value
Dimensional Fund Advisors does not have any bank affiliates.