Sound Planning Anticipates Good and Bad Times

March, 2023

Most are aware of last week’s closure of California’s Silicon Valley Bank and Signature Bank. They are the second and third largest bank failures since 2001. Over 85% of the deposits, it is estimated, were very large institutional holdings and thus uninsured. A haircut of 10% to 15% of the uninsured accounts was likely, as well as a lock up of funds for months. Since 2001, 506 banks have failed in the U.S. The largest was Washington Mutual back during the 2008 panic.1

Following those events, the U.S. Treasury Department, Federal Reserve, and FDIC stepped in with decisive action to support depositors during this critical time. Those steps provide an additional layer of protection for individuals and will help boost confidence in the banking system. Whether guaranteeing even uninsured deposits at Silicon Valley and Signature and offering generous loans to other banks with poor management practices is wise policy (or even legal), remains to be seen. Despite official denials, this is a de facto banking bailout now endorsed by many in government who promised after 2008 that such action would never happen again.

Your Relationship with Charles Schwab

The clients of Professional Financial have their investable assets custodied primarily with Charles Schwab. We have custodied with Schwab for over thirty years. For over 50 years, Charles Schwab has been a safe, secure, and strong financial institution with disciplined risk management practices. Because of your trust placed in us, know these very important points:

  • Schwab does not have any direct business relationship with Silicon Valley Bank or Signature Bank, so they do not have exposure to any direct credit risk from either.
  • Investments at Schwab are held in investors’ names at the Broker Dealer. Assets in your accounts are separate and not commingled with any assets at Schwab’s Bank.
  • Schwab has a broad customer base across multiple lines of business, capital well in excess of regulatory requirements, a high-quality and relatively small loan book, and a conservative investment portfolio that is 80% comprised of securities backed by the U.S. Treasury and various government agencies.
  • Collectively, more than 80% of client cash held at Schwab Bank is insured dollar-for-dollar by the FDIC. According to S&P Global Market Intelligence, that percentage is among the highest of the top 100 U.S. banks.

Schwab, in our opinion, is a safe port in this financial storm. It has record-setting business performance, a conservative balance sheet, and a strong liquidity position. Please see the recent release of their regularly-scheduled Monthly Activity Report for more information.

Your Relationship with Dimensional

Our client funds are invested primarily through Dimensional Fund Advisors based in Austin, TX with other locations around the world. Professional Financial is wholly independent of Dimensional. We deeply believe that Dimensional can deliver a reliable client investment experience through their accumulated expertise, judgement, and skill to pull the right levels at the right time. Our investment management process employs their mutual funds and ETFs rather than select individual securities.

Dimensional does not physically custody any underlying securities they manage on your behalf. Securities in their funds are held by custodial banks that are restricted and limited in their businesses to holding securities of mutual funds, ETFs and similar vehicles. They do no “banking” in the conventional sense that Silicon Valley Bank or Signature Bank did.

Dimensional is part of the mutual fund industry with rules and regulations specifically designed to benefit investors. Mutual funds are regulated by the Securities and Exchange Commission (SEC) under laws including the Securities Act of 1933, Securities Exchange Act of 1934, and the Investment Company Act of 1940. Since those laws were enacted, there has been no investor loss due to fraud or malfeasance.

Dimensional Performance

Barron’s recently named Dimensional Fund Advisors No. 1 in their “Best Fund Families of 2022” list. The rankings look at the one-year records of how each firm’s actively managed funds performed vs. peers, based on data from Refinitiv Lipper. Dimensional also ranked No. 7 on its 10-year list, the longest time horizon included.2

While past performance is no guarantee or assurance about future results, Barron’s noted that Dimensional “sidestepped the meltdown in mega cap growth names and companies with few, if any, profits.” Good long-term outcomes despite bad times are what you need as you near or during your retirement years when working longer or saving more is not an option.

Reviewing Exhibit 1 the “Dimensional vs. the Fund Industry” for the previous 20 calendar years, we see the history of fund survival and out-performance of the fund industry overall relative to that of Dimensional’s funds is dramatically different. The average U.S. domiciled fund survives only 11 years, presumably due to underperformance. The underperformance history of those dead funds are usually replaced by new funds in the family. Since almost all of Dimensional’s funds survive, the high outperformance numbers have more meaning. Even most of the Dimensional “underperformers” are off by only a few basis points.

Exhibit 1: Dimensional vs. the Fund Industry

US-domiciled equity & fixed income funds outperforming benchmark as of December 31, 2022

table: US-domiciled equity & fixed income funds outperforming benchmark as of December 31, 2022

Source: Dimensional Fund Advisors. Performance data shown represents past performance and is no guarantee of future results. The sample includes funds at the beginning of each respective period ending December 31, 2022. Survivors are funds that had returns for every month in the sample period Outperformers (winner funds) are funds that survived the sample period and whose cumulative net return over the period exceeded that of their respective benchmark. Each fund is evaluated relative to its respective primary prospectus benchmark. Where the full series of primary prospectus benchmark returns is unavailable, funds are instead evaluated relative to their Morningstar category index.

1.US-domiciled, USO-denominated open-end and exchange-traded fund data is provided by Morningstar.

2.Dimensional fund data provided by the fund accountant. Dimensional funds or sub-advised funds whose access is or previously was limited to certain investors are excluded.

Planning Expectations

Don’t focus your investing on trying to predict what will happen. Plan with an informed approach for what can happen in a way that minimizes potential mistakes.

What can happen? We can have much better news than expected, and returns would be strongly positive; news can be worse than expected, and returns would be more negative than expected. Inflation can be higher or lower than expected and impact stock or bond markets differently.

Our expectation for investment management is that stocks have positive returns, that lower quality bonds will outperform higher quality bonds, and that inflation will be modest.

Since those things can happen, how can you wisely plan a strategy for the unpredictable?

On the equity side, you can diversify. Avoid subjecting your portfolio to only one country or one sector by diversifying across countries and sectors. Don’t concentrate in stock selections or make timing bets that may lead to missing unexpected positive returns. Value stocks strongly outperformed growth stocks in 2022, after a series of disappointing years, returns that most investors missed.

But what about when markets go down? Plan for what can happen through asset allocation. Have an appropriate split of stocks and bonds suitable for your time horizon and your preference for market risk that mitigates the downside outcomes of a bad year.

An informed plan is focused on your goals. Stay disciplined by tracking performance against your goals. If news is better than expected, you won’t miss those positive stock gains, and causing your portfolio results to be worse than what they could have been.


Sound planning anticipates both good times and bad times. Your portfolio strategy should be planned to allow for a range of possible outcomes. A personally planned investing strategy, professionally done, should mitigate the impact of a negative event or enhance the benefit of a positive event, within some historic range of outcomes.

Professional Financial plans for what can happen with systematically structured strategies that encompass a set of potential outcomes without making predictions. In this way, planning can make you more confident of realizing your family’s hopes and dreams and you can have more peace of mind even in troubled times regardless of what is happening.