Would you use DFA funds, if available?

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cals400ex
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Would you use DFA funds, if available?

Post by cals400ex » Sun Dec 20, 2015 10:15 am

I'm in the process of signing up for a 401K at work and I have a lot of great, low cost options. I'm 33 and my only retirement account is 43K in a van. target 2040 retirement fund (vforx). Here is the list of 401K funds:

STOCK:
DFA Commodity Strategy Portfolio --(DCMSX)--ER: 0.33%
DFA Emerging Markets Value Portfolio--(DFEVX)--ER: 0.55%
DFA International Value Portfolio--(DFIVX)--ER: 0.43%
DFA Int. Small Cap Value Portfolio--(DISVX)--ER: 0.68%
DFA U.S. Large Cap Value Portfolio--(DFLVX)--ER: 0.27%
DFA U.S. Targeted Value Portfolio--(DFFVX)--ER: 0.37%
iShares Core MSCI Emerging Markets ETF--(IEMG)--ER: 0.18%
Vanguard FTSE All-Wld ex-US Sm Cap Idx ETF--(VSS)--ER: 0.19%
Vanguard Global ex-US Real Estate ETF--(VNQI)--ER: 0.24%
Vanguard REIT ETF--(VNQ)--ER: 0.12%
Vanguard 500 ETF--(VOO)--ER: 0.05%
Vanguard Small Cap ETF--(VB)--ER: 0.09%
BOND:
iShares Core US Aggregate Bond ETF--(AGG)--ER: 0.08%
Vanguard Short-term Bond Index ETF--(BSV)--ER: 0.10%
Vanguard Sh-Tm Inf.-Prot. Sec. Idx ETF--(VTIP)--ER: 0.10%
BLENDED:
DFA Global Allocation 60/40 Portfolio--(DGSIX)--ER: 0.29%
CASH/STABLE VALUE:
Vanguard Prime Money Market Fund (Inv)--(VMMXX)--ER: 0.16%


I want to be a bit risky at my age, but I'm not sure where to start. I was considering 45% VOO, 15% VB, 20% VSS, 20% AGG. Or, I could use a few DFA funds considering they are available to me... Also, I'm completely fine changing up my roth ira as needed. I plan on maxing out my roth and 401k yearly. Any suggestions on these funds or DFA funds?

livesoft
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Re: Would you use DFA funds, if available?

Post by livesoft » Sun Dec 20, 2015 10:19 am

Yes, I would use some of those DFA funds.

You listed the funds you would use, but not your desired asset allocation, so one cannot tell if your fund selection has anything to do with your asset allocation or not. I give an example of my asset allocation in this thread: viewtopic.php?t=150267
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cals400ex
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Re: Would you use DFA funds, if available?

Post by cals400ex » Sun Dec 20, 2015 11:03 am

I know I left out some detail, and that is partly because I have limited knowledge with this. I feel like a 80% stock / 20% bond ratio will suite me well. I'd prefer 20-30% international. I've considered a small tilt to small cap for a little more risk. I don't know if 5-10% of REIT is typically recommended or not... I was given a risk assessment test that had portfolios of risk adverse 1, risk adverse 2, conservative 1, conservative 2, moderate 1, moderate 2, aggressive 1, aggressive 2, and highly aggressive. I ranked right between aggressive 1 and aggressive 2. I hope this information helps as your suggestions are greatly appreciated.

livesoft
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Re: Would you use DFA funds, if available?

Post by livesoft » Sun Dec 20, 2015 11:05 am

You may wish to play around with the morningstar.com instant X-ray tool.
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am
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Re: Would you use DFA funds, if available?

Post by am » Sun Dec 20, 2015 12:36 pm

I would pass unless you want to pay extra fees and strongly believe that factors and tilts will give you an advantage going into the future. Additionally be prepared to potentially underperform traditional indexes for years. Will you stick to the plan in this case?

downshiftme
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Re: Would you use DFA funds, if available?

Post by downshiftme » Sun Dec 20, 2015 12:43 pm

I like DFA funds, but I don't like them more than equivalent funds with lower ER.

cals400ex
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Re: Would you use DFA funds, if available?

Post by cals400ex » Sun Dec 20, 2015 12:50 pm

I don't have a problem sticking to a plan, even if I'm down. I'd prefer to buy more shares when the fund(s) is down. This tolerance for risk is greater now (even if I'm losing at times, I can still sleep at night) and this will likely change as I age. I'm playing around with the mornistar x-ray tool, but I don't exactly know what to look for. I feel like 10% DFEVX, 15% DISVX, 25% DFFVX, 25% VOO, 20% AGG, and 5% VNQ might suite my wants for a slightly higher risk towards small and value, but I could be wrong. Maybe the cheaper vanguard funds are a better option. I have little to no experience with this.

Elysium
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Re: Would you use DFA funds, if available?

Post by Elysium » Sun Dec 20, 2015 12:56 pm

I would use the following funds:

DFA U.S. Large Cap Value Portfolio--(DFLVX)--ER: 0.27%
DFA U.S. Targeted Value Portfolio--(DFFVX)--ER: 0.37%
DFA International Value Portfolio--(DFIVX)--ER: 0.43%
DFA Int. Small Cap Value Portfolio--(DISVX)--ER: 0.68%
DFA Emerging Markets Value Portfolio--(DFEVX)--ER: 0.55%
and
Vanguard Short-term Bond Index ETF--(BSV)--ER: 0.10%

I would try to follow same AA as your TRD 2040 fund for stock/bond allocation. Then use whatever allocation you want between US/Intl and then Large/Small to split the other funds.

Once you do this, remember to set the contributions and future investment allocation in autopilot mode. Update statements only once every six months or so, and then if needed check year end to rebalance. You would need to have a strong stomach to handle volatility and a willingness to handle tracking error if the market performs better than your portfolio.

If you cannot do all that then a simple market portfolio is better.

BTW, I wouldn't worry too much about the ER, they are only fractionally higher and more than enough compensate in the long run, obviously no guarantees.

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Aptenodytes
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Re: Would you use DFA funds, if available?

Post by Aptenodytes » Sun Dec 20, 2015 1:17 pm

DFA Int. Small Cap Value Portfolio--(DISVX) is the one I'd take a close look at. International small-value has no Vanguard equivalent, though many use VSS as a rough proxy. The fees are high, but the evidence suggests the returns might warrant paying them.

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nisiprius
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Re: Would you use DFA funds, if available?

Post by nisiprius » Sun Dec 20, 2015 1:22 pm

Since it is in a 401(k) there is no penalty and no tax consequences for changing your mind. I would do it in three steps.

1) Get signed up, decide how much I can contribute, and start with a simple three-fund portfolio. It's a little awkward since there aren't obvious equivalents to (untilted) total international or total U.S. stock (as opposed to the S&P 500), but possibly:

DFA International Value Portfolio--(DFIVX)--ER: 0.43% for international
Vanguard 500 ETF--(VOO)--ER: 0.05% for core U.S. stocks
iShares Core US Aggregate Bond ETF--(AGG)--ER: 0.08% for bonds.

Or you could make use of the fact that you have another retirement account and adjust what you are holding in which account.

I would spend serious time on deciding my risk tolerance and overall stock/bond allocation.
I would spend enough time to form a thoughtful opinion on balance between U.S. and international.

2) I would then spend however much time it takes, perhaps as much as a year, deciding whether I really have a strong personal conviction about the value of the strategies described by nicknames such as
--"tilting"
--"slice-and-dice"
--"factor-based investing."

The reason for needing strong personal convictions is that this route needs to be a serious long-term commitments. In the words of Jared Kizer, who is an advocate for this investing style:
Any transparent strategy, which applies to everything outlined in this piece, is capable of extended periods of underperformance. There is nothing that preordains these strategies to work over any period of any length. Investors should either commit to these strategies over an extremely long time horizon or not tilt toward these factors at all.
Since this is a commitment for an "extremely long time horizon," it is reasonable to spend a long time thinking before committing.

3) If I were convinced, then, yes, I would probably opt for DFA funds because in my personal opinion this is DFA's area of expertise. If I were convinced, then--and again, this is a personal judgement--DFA's funds can be fairly described as "low cost," just not the lowest. The typical claims made by advocates of factor-based investing and in the ballpark of 0.50%-1% higher return for the same risk, and that to me would justify the higher expenses of the funds themselves if you can get them without paying an advisor's fee on top of that.

(By the way, I'm not convinced. I'm a "majesty of simplicity" guy myself.)
Last edited by nisiprius on Sun Dec 20, 2015 1:26 pm, edited 3 times in total.
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rustymutt
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Re: Would you use DFA funds, if available?

Post by rustymutt » Sun Dec 20, 2015 1:24 pm

downshiftme wrote:I like DFA funds, but I don't like them more than equivalent funds with lower ER.

+1
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livesoft
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Re: Would you use DFA funds, if available?

Post by livesoft » Sun Dec 20, 2015 1:31 pm

If you would like to read a book advocating a small-cap and value-tilted portfolio, then I would suggest a book or two by Larry Swedroe.

The Only Guide to a Winning Investment Strategy … for starters and
The Only Guide You'll Ever Need for the Right Financial Plan.

Another warm-up is to read the Trev H thread: viewtopic.php?t=38374

I think one could have a Total Market Weights portfolio (i.e. 3-fund portfolio) or mix with added small-cap-value funds or even large-cap value. But as nisiprius writes, you should understand why you would want either and firmly believe in the Kool-Aid, whether the Kool-Aid is flavored by 3-fund gurus or small-cap-value gurus. You should not just take advice from message boards without doing lots of your own research.

Since DGSIX is a fund available in your 401(k), you might wish to compare it to Vanguard VSMGX which is a total market weights index fund of the same asset allocation. Use morningstar.com for the comparison. For example, http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
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Day9
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Re: Would you use DFA funds, if available?

Post by Day9 » Sun Dec 20, 2015 5:23 pm

I believe the DFA small value funds are smaller and more valuey than Vanguard's. Also I think that Vanguard's funds are more likely to change indexes or strategies than DFA's. There was a big thread on this forum about how small value ETF PSXV (or something like that) changed indexes and a lot of people thought this was very bad.
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edge
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Re: Would you use DFA funds, if available?

Post by edge » Sun Dec 20, 2015 7:55 pm

Yes, I use them for my value tilt in intl small, EM, us stocks. I also use their global real estate fund. I would not use them if I had to pay much more than the ER (I pay no extra currently).

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