When I first started advising clients in the early 1990’s, I offered a range of investment products from a number of firms—established, respected names such as Fidelity and Vanguard. But over time, I noticed that one firm’s offerings generally had the best, most consistent performance—those of Dimensional Fund Advisors (DFA).
DFA was founded by a pair of graduates from the University of Chicago School of Business. The school, by the way, now bears the name of one of them—David Booth. That sounds very prestigious, and it is, but that’s not why I started recommending DFA’s products above all others. I felt it was my duty to my clients to recommend the firm I believed was the best, while having no financial incentive to do so. Here are some reasons I view DFA as the best in its class:
- Return Performance: For a compelling comparison of performance over the last 16 years between DFA funds and those of another firm offering low cost, index-based strategies (Vanguard), click here.
- Minimal Taxes: Too many investment strategies fail to take into account the tax obligations they will trigger. DFA’s funds include strategies built for tax management and the limiting of realized gains. In 2014, one of my clients owed just $398 in taxes on a $4.3 million account consisting mostly of DFA funds. That same year, the same client owed $10,399 in taxes on a $1.2 million account held with a large national bank.
- Low Trading Costs: The cost of implementing any investment strategy subtracts dollar-for-dollar from that strategy’s returns to the investor. Part of DFA’s focus on efficiency lies in strategies designed to minimize trading costs. Independent research firm Morningstar shows DFA’s stock and bond funds to have expense ratios that vary between .23% and .52%, earning them industry expense ratings of “Very Low.”
- A Scientific Approach: DFA believes that markets work. After all, on average the U.S. stock market goes up about 10% per year. So instead of trying to beat the markets, they utilize proven academic research to more efficiently capture the returns that a well-functioning market creates. The difference between this approach and that of someone trying to outguess markets by peering into the future is like the difference between an astrologer and an astrophysicist. DFA’s board members and staff include top-level professors and academic researchers, such as 2013 Nobel Laureate Eugene Fama, who sits on the board of directors.
For a short video on DFA including their history here.
If you’d like to learn more about DFA’s products, or discuss any other financial issues, talk to your PERSONALCFO at PARTNERSINWEALTH. Whatever your financial goals, we know how to accelerate the growth of your family’s net worth, while removing worry and clutter from your life. A well designed investment strategy, such as those embodied in DFA’s products, is an important step on that path. Contact Jim Waters, CFP®, at 713.964.4028 or firstname.lastname@example.org.
Dimensional Fund Advisors LP (“Dimensional”) is an investment advisor registered with the Securities and Exchange Commission. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. This content is provided for informational purposes, and it is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services. Past performance is not a guarantee of future results. Indices are not available for direct investment. Their performance does not reflect expenses associated with the management of an actual portfolio