The Sustainability Opportunity

Sustainability goes beyond reduce, reuse, and recycle. Today more than ever, investors are calling for sustainability opportunities, and markets are answering. But investing isn’t as simple as paper over plastic in the checkout line. For the investor who seeks to hold a portfolio that reflects their commitment to sustainability, Dimensional builds sustainability-focused investment strategies using scientific research and sound investment principles.

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How Does Inflation Impact Investors?

When the prices of goods and services increase over time, consumers can buy fewer of them with every dollar they have saved. This erosion of the real purchasing power of wealth is called inflation. Inflation is an important element of investing. In many cases, the reason for saving today is to support future spending. Therefore, keeping pace with inflation is a crucial goal for many investors. To help understand inflation’s impact on purchasing power, consider the following illustration of the effects of inflation over time. In 1916, nine cents would buy a quart of milk. Fifty years later, nine cents would only buy a small glass of milk. And more than 100 years later, nine cents would only buy about seven tablespoons of milk. How can investors potentially prevent this loss of purchasing power from inflation over time? (more…)

Lump-Sum Investing vs. Dollar-Cost Averaging

Concerns about market downturns certainly come as no surprise. After all, steep corrections and crashes can be alarming for even the most steely and disciplined investors. So, when markets reach all-time highs, investors tend to be concerned about investing their hard-earned money in overvalued stocks. Questions about reducing or even eliminating equity allocations or keeping excess cash on the sidelines soon follow. While these lines of inquiry are completely natural—no one enjoys buying high and selling low—we believe that every day is a good day to invest no matter what the market has done recently.

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How should I think about cryptocurrency?

“Everything you don’t understand about money combined with everything you don’t understand about computers.” ~ HBO’s Last Week Tonight with John Oliver, March 11, 2018

As cryptocurrencies are in the headlines more and more, some investors are wondering if they should dedicate a portion of their portfolio to these new types of electronic monies. Cryptocurrencies represent innovation within financial services, but there are still many uncertainties about the future of their technology and their returns.
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Think Investing Is a Game? Stop.

by David Booth
Executive Chairman and Founder
It’s easy to view the stories of market speculation that have dominated the news recently as cautionary tales for individual investors. But we can also look at the current moment as an opportunity to welcome a new group of investors to the market: those who have been drawn in by all the high-stakes action, and yet may want a consistent, long-term investment solution that doesn’t keep them up at night. This is probably a good time to mention that investing and gambling are not the same thing. (more…)

Tales from the Crypto: How to Think About Bitcoin

“Everything you don’t understand about money combined with everything you don’t understand about computers.” ~ HBO’s Last Week Tonight with John Oliver, March 11, 2018

Bitcoin and related cryptocurrencies (now numbering in the thousands) are the subject of much debate and fascination. Given bitcoin’s dramatic price changes, it is not surprising that many are speculating about its possible role in a portfolio. (more…)

What Is the Social Cost of Carbon?

KEY TAKEAWAYS

  • The social cost of carbon (SCC) estimates the future damages from an additional ton of CO emissions.
  • The number is crucial for environmental policymaking and was just updated by the new US administration.
  • The estimation of the SCC is sensitive to its inputs, and debate continues in the academic community about its appropriate value.

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The Economics of Climate Change

This paper summarizes the economics of climate change. We first review the basics of climate science and the historical evolution of greenhouse gas emissions. We then discuss the relation between climate change and economics and assess the economic costs, direct and indirect, of climate change. These costs are uncertain and sensitive to the choice of discount rate, but overall, the expected costs are economically significant, and early mitigation efforts may be more cost-effective than later actions. We discuss the tradeoffs associated with different potential actions, such as carbon taxation and cap-and-trade programs. Finally, we examine the implications of climate change for asset pricing and investment choices.

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Large and In Charge: Giant Firms atop Market Is Nothing New

A top-heavy stock market with the largest 10 stocks accounting for over 20% of market capitalization and a marquee technology firm perched at No. 1? This sounds like a description of the current US stock market, dominated by Apple and the other FAANG stocks,1 but it is actually a reference to 1967, when IBM represented a larger portion of the market than Apple at the end of 2019 (5.8% vs. 4.1%). (more…)

What a Company’s Emissions Tell Us about Its Expected Returns

Climate scientists have identified greenhouse gas (GHG) emissions as the largest contributor to global climate change.1 As a result, many investors are looking to reduce their emissions exposure through their portfolios and wondering if doing so would affect their expected performance. A new research paper from Dimensional delves into this subject by examining the relation between firm-level emissions and expected returns.

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