I'm sure there are SOME people who may pick an advisor over another one based on access to DFA... but I'm not convinced that there would be a statistically relevant group of people who would pick an advisor over NO ADVISOR just for access to DFA.
Rick Ferri wrote:I'm sure there are SOME people who may pick an advisor over another one based on access to DFA... but I'm not convinced that there would be a statistically relevant group of people who would pick an advisor over NO ADVISOR just for access to DFA.
You would be amazed at the great lengths some people go through just to gain access to DFA funds. I just don't understand it. Yes, DFA has a few good funds. However, gaining access to DFA or any other fund company is not a good enough reason to pay an advisor, IMO.
There is only one good reason to hire an advisor. It is because you would rather have someone else manage your portfolio or a portfolio that you are tasked with overseeing.
whitemiata wrote:It's amazing that I could finish reading your book last night (All about Index Funds - I enjoyed it very much, thanks for writing it) and here you are responding to a post I wrote.
I know this forum is *swarming* with authors of books I've enjoyed, but still.
It's amazing that I could finish reading your book last night (All about Index Funds)
i guess that merriman gets schwab to remove the lock and allow these accounts to buy DFA funds. I suppose that somebody from his office actually does the buying and selling, but I don't know since I don't use it.
drat69 wrote:I was wondering why they don't sell their funds to everyone? I looked up their website and found an article.
"Keeping individual investors out makes DFA more economical to run, which boosts the returns of shareholders it is willing to accept."
Hard to believe these guys are keeping their market share small so that the investors will get a fraction of more return.
AssetBuilder, Inc. (AB) is a Securities and Exchange Commission (SEC) Registered Investment Advisory firm. A vision shared by Kennon Grose and Scott Burns, our goal is to serve investors better, and at lower cost, than traditional financial firms. Our intent is to serve your needs as a self-directed investor with trusted content, education, customer advocacy and social computing. Our product is pre-constructed risk-measured portfolios that efficiently deliver the highest return for a given level of risk.
We know that your investments are your money. Therefore, you deserve as much of the return on your money as possible. We know it will make a difference in your life. This may seem obvious, but it is not what motivates many financial services companies. Witness the high expenses of the most heavily marketed products.
Our goal is to be your partner, to share our knowledge, and to engage you as a student and investor. That’s why our website is an invitation to comment and participate, along with observations on markets, investing, financial planning, and taxes.
We bridge the gap with simplicity, discipline and execution when the investor doesn’t want to travel the do-it-yourself path. We have developed statistically efficient portfolios using Dimensional Advisor funds - risk calibrated portfolios. Our service is based on being employed by you to manage your investments with these statistically efficient portfolios. We add what Scott calls rocket science to his Couch Potato portfolios.
AssetBuilder fee structure ranges from a maximum of 50 basis points (0.5 percent) a year down to 25 basis points, depending on the size of the account. We are currently only accepting accounts with at least $50,000.
Researchers Eugene Fama and Kenneth French have shown that we can get higher returns if we build portfolios with value stocks - those with prices at low price-to-book-value ratios. They also found we get higher returns with small-capitalization stocks. According to Ibbotson Associates, for instance, large-company stocks returned 10.4 percent, compounded annually, from 1926 through 2005. Small-company stocks provided 12.4 percent. The higher return was not a free lunch: You got it only by surviving some catastrophic declines.
A tilt toward value stocks does much the same. Over the long term, the bargain hunters have always prevailed over the hyper-ventilators. Today, smart index funds are abundant, either as mutual funds or exchange-traded funds (ETFs). We have chosen to use Dimensional Fund Advisors, a fund organization founded on the very best academic research.
Smart Asset Allocation
The first three elements are pretty easy. No rocket science required. The fourth step is a lot harder.
It is constructing a portfolio that gives you the highest return with the least risk. It can be done wih a technique called mean variance optimization, which is close enough to rocket science to have won its creator, Harry Markowitz, a Nobel Prize in 1990. Today, a number of software venders sell optimization packages. Unfortunately, having the tool and getting reasonable results isn’t the same thing. Many would do better with an OuijaTM board than with an optimizer. Many advisory firms talk about optimizing. But few actually do it. We do it.
And hence, our value proposition to you -- pre-constructed, risk-measured portfolios. The right portfolio for you is based on your risk tolerance, time horizon, investment needs and goals.
Why Dimensional Fund Advisors?
For Scott the story begins in the summer of 1987 with some columns about the idea of an “all weather portfolio” – a portfolio that would be less vulnerable to declines. The All Weather Portfolio morphed into the Couch Potato portfolio and that, in turn, grew with additional flavors like Margarita, Six Ways from Sunday and finally the 10 Speed. The basic drivers were (1) low cost index funds, (2) “naïve” asset allocation, and (3) smart indexing ala Fama/French.
Scott’s focus was ease of implementation and it supported a real do-it-yourself (DIY) strategy. Vanguard has always been the foundation of his strategy because of its quality, index focus, availability and low costs. We will continue to support Vanguard as the optimal fund company for the DIY investor.
When Scott and Kennon formulated the business model for AssetBuilder, we wanted to carry Scott’s consumer advocacy role forward. Our value premise is simple. We will do things that many individual investors fail to do. While lots of people "get it" when it comes to index investing, they drop the ball when it comes to execution. They let their money sit in cash. They let stray ideas and magazine articles influence their investment choices. Or they simply fail to re-balance when it is time to do it.
So their returns are less than they might be. They got the idea, but there are dozens of ways they could miss the boat for putting it to work.
We put the idea to work. We make it happen.
We take responsibility for all the details. We do this for 25 to 50 basis points a year. Add the cost of the underlying funds, and our typical account will have a total cost burden of about 75-85 basis points a year.
If you are a dedicated independent investor you can do much of this yourself and you can probably bring it in at an annual cost of about 30 basis points, depending on where and how you build the portfolio. We think AssetBuilder will be worth the difference. Equally important, we know it will cost far less than the alternatives.
In addition to meticulous execution, we also believe we will add value by mean variance optimization – rocket science -- of portfolios rather than easier constructions such as the Couch Potato portfolios and similar ideas such as William Bernstein’s “Cowards Portfolio”, the Coffeehouse Portfolio, etc. The rocket science requires more work and a lot more than division by a small number. With it, however, we can generally deliver a measured return for a defined measure of risk. Our results are a fly-by-numbers operation versus a “wink-wink, we’ll do ya a good job”.
Part of our rocket science is based on a discipline called Modern Portfolio Theory. Modern Portfolio Theory suggests that your portfolio should be diversified with REITs, international, emerging market and United States equities. For us, the emphasis is also on the Fama/French factors that would focus on small cap and value. The basic idea is to get the highest possible return with the lowest possible risk, measuring the risk by price fluctuations.
Our focus on Fama/French and Modern Portfolio Theory lead us to Dimensional Fund Advisors (DFA - www.dfaus.com). DFA investment strategies are grounded in robust academic research. Vanguard is a first generation of index funds. DFA is a second generation of index funds, what the industry calls quantitatively active and Scott calls smart index funds. In addition, DFA funds are institutional which means they have a higher minimum investment requirement (DFA $2 million) than the funds afforded the typical DIY investor. Finally, to get the tilt toward value and small cap funds, there are significant gaps in the Vanguard strategy.
The following performance results represent the equity asset classes of interest for the AssetBuilder portfolios. While we could provide a great deal of commentary on the funds, the numbers speak for themselves given our desired value premise. We are still huge fans of Vanguard and will continue to be for an investment strategy available to all of Scott’s many valued readers.
springwater wrote:If they are concerned about retail churn, they can just put $100,000 minimum investment to get access to the funds and a very high penalty if they sell within 1, 3, 5 years whatever.
If someone wanted to replicate the DFA's funds they should be able to do it with ETF's.
Cubsfan wrote:Emerging markets small cap, EM value, international value, and international small cap value seem to be the funds I can't replicate. Can anybody suggest substititutes for them?
paulob wrote:Cubsfan wrote:Emerging markets small cap, EM value, international value, and international small cap value seem to be the funds I can't replicate. Can anybody suggest substititutes for them?
Maybe DLS for ISV and DODFX for IV. Although DODFX isn't a passive fund, it passes the low-cost test.
tuffy88 wrote:If someone wanted to replicate the DFA's funds they should be able to do it with ETF's. If there is not an ETF clone of each of their funds I bet that there soon will be. DFA might even do it themselves. Of course that would not make their financial advisor associates happy. No one would then have to pay advisors a toll to serve as gatekeepers.. About the same thing that has happened to full service stockbrokers.
Cubsfan wrote:I do like DODFX (and Dodge and Cox in general) but DFIVX does beat it slightly over 1,3, and 5 years. Several people have voiced concern about possible problems with asset bloat due to the huge numbers of people piling into DODFX over the last few years. I wouldn't be surprised to see it close.
paulob wrote:Cubsfan wrote:I do like DODFX (and Dodge and Cox in general) but DFIVX does beat it slightly over 1,3, and 5 years. Several people have voiced concern about possible problems with asset bloat due to the huge numbers of people piling into DODFX over the last few years. I wouldn't be surprised to see it close.
I looked at DODFX and DFIVX returns as very close. After you subtract advisor's fees and transaction (purchase) costs, my guess is that DODFX would be slightly ahead.
I agree asset bloat will cause the fund to close. The good news is that DODGX continues to perform well after it shut the doors which bodes well for it's sister. Also, per Rick's post, DODFX won't be the only fund to close so that shouldn't be a barrier to using it.
cheapskate wrote:One of my regrets is that I did not invest in DODGX before it closed. If I had done so, I would have used DODGX for US Large exposure.
As many people know, several funds are closing in December. New assets will be directed into funds that have "larger" small cap and mid cap stocks. DFA has to do this. They are tapped-out in the micro cap and small cap area. They have hit critical limits on percent ownership of many smaller companies and cannot buy anymore shares.
a SV fund in particular is less important to the overall plan than what its total exposures to Small Cap and Value risk are. The degree of exposure to small value (or small and value) stocks are what counts, not the actual fund itself.
Users browsing this forum: msi and 33 guests