DFA Funds: The Porsche of Index Funds

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While continuing my reading, it seems like Dimensional Fund Advisors (DFA) mutual funds are the Porsche of index funds. They are sexy in that they index everything under the sun (including stuff Vanguard does not) such as having a SmallCap Emerging Markets fund. They are well-engineered, being based on the best academic research available and having famous professors Fama & French on their boards. DFA tries to take indexing to the next level. Finally, they are exclusive as their funds are only available through approved financial advisors. Of course, this also means you’ll also have to have at least $100,000 to play with and pay annual advisor fees. I believe this is to avoid the performance hit on their funds from any active trading by untrained investors.

I don’t know if the fees are worth it, but, just like a Porsche, I still have this mysterious instinctual urge to own some!

Here is another pretty good article about DFA funds from MSNBC, titled ‘DFA Funds Hard to Buy, Easy to Own’. Does anyone out there own DFA funds? What kind of minimum balance requirements and annual fees does your broker charge?

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  1. With all the attitudes and restrictions, what value do these Porsche type of funds offer? Any actively managed funds carry bigger fees , not to mention the initial financial planning cost… I guess I am still a believer in cheaper index funds…

  2. Their expense ratios are actually very low and competitive with Vanguard (where my Porsche analogy fails), and if you have a large amount to invest you can get away with advisor fees being a lower percentage of your portfolio. The funds remain index funds with very little turnover, and they historically have outperformed many other index funds due to the little things that they do.

    Their performance records and high tax-efficiency help keep the high demand for their product. They seem to do very well despite hardly any advertising at all. I don’t know if I would choose them either, but for now it’s a moot point. I do plan to take a second look at them when my portfolio becomes large enough.

  3. My company’s retirement plans are managed by Fidelity, which means we can invest in many different mutual funds without worrying about fees or minimum balances. I have no clue about Fidelity’s personal accounts, but maybe they have something similar???

    I have my money (which is well under $100,000) in a Dimensional Emerging Markets Portfolio and I really like it. It invests in large-cap stocks of emerging stocks and has an expense ratio of 0.69% and management fee of 0.5%. That makes it more expensive than domestic index funds, however, with this fund I get exposure to the international market at a minimal cost.

  4. I have been investing in DFA funds for 2 1/2 years. Before switching my mutual funds to DFA, I thoroughly research my options including ETFs and Vanguard. To sum it up, ETFs do not offer the diversity of DFA and do not have any good choices for microcaps and international. Vanguard trailed DFA by over 2% in every time period in which I could find information. So the superior performance of the DFA funds versus Vanguard more than makes up for the financial advisor fee.

    If you have under $500K to invest, the cheapest option is to pay 0.9% to IFA.com to put you in DFA funds. IFA has an AWESOME website that should be thoroughly read just to learn about investing, even if you don’t use them.

    If you have more than $500K to invest, there are a couple of flat fee advisors that charge $1500 to $3000 a year.

  5. city girl – that expense ratio sounds about right for an Emerging Markets fund, which usually cost more that even most international funds.

    kpc – Do you use IFA? If so, do you like them? IFA also recommends a minimum portfolio of $100,000, and would charge a 0.9% annual fee for such a small portfolio (+ transaction fees from Schwab). Still, not bad if you want to be totally hands-off.

  6. Yuna is right to be skeptical, but they really are the only fund provider that’s better than Vanguard. Their advantage is that they are dispassionate about individual stocks, which I believe is the biggest advantage of index funds. In order for this to work right, they need most of their investors to be in it for the long run, so that’s why they only offer their funds through “specially trained” advisors. Most of their funds cut across traditional asset classes, so you need some more complex analysis to manage risk/return and diversification.

    FundAdvice.com has a few articles about them, too.

  7. Oh, and I think Jonathan’s Porsche analogy is right on. They’re not made for just anyone (excluding the price), but they scream in the hands of skilled driver.

  8. so would that make berkshire hathaway a rolls royce?

  9. I dunno, to me BRK is a custom car that may not perform so well with any other driver than Buffett 😉

  10. It looks like IFA will perform asset allocation for you for a 0.9% fee – is that basically it or am I over simplifying?

    DFA looks good but I’d rather have the option of tax harvesting ETF’s if I need to.

  11. Paul Marriman has a web site http://www.fundadvice.com that has a recommended DFA portfolio for maximum gains combined with minimizing risk. I checked with a local DFA fund advisory service and they are asking 1% advisory service fee. This is in additional to any and all nomral maintenance fee incurred with each respective DFA funds. I’m actually considering this approach but I’m currently in sticker shock at the advisory fee. However I may try to develop my own model portfolio developed by various information sources such as IFA and Paul Marriman. I just recently wrote a blog on this topic.

  12. I forgot to ask. How is the book your reading “Intelligent Asset Allocator”? Looks like good reading. I may need to pick up a copy.

  13. rodlykins says

    I have been with DFA for about 8 months and the funds have been great. I completely changed my approach to investing, even after being Legg Mason Value Trust (LMVTX) for over 7 years. My advisor (Talis Advisors) is a DFA advisor that charges a .55% advisor fee for a $100K portfolio. I basically do all the work and just wanted access to DFA funds. The advisor fee was .7% for under $100K.

  14. I’ve been with DFA for about 9 months and am very satisfied. We got into the funds for a 1/4 percent for 250K. The added bonus is that my wife and I are out of the equity business, we just sit back and relax. We do manage our income portfolio and sometimes buy some equities with our play money. This site will help you see the expenses ratio comparisions. Typically, Vanguard is the lowest with DFA right behind it.


  15. In a recent blog, Paul Merriman stated that DFA still manages to best Vanguard by 1 to 2% after expenses/advisory fees. If I took the savings of the advisory fees & invested those on an annual basis with Vanguard, how much better would DFA really be? Or has that been factored in as well? The one thing that I see with DFA would be access to investments that I cannot get through Vanguard (US/Int’l Micro Cap, Int’l Small Value – VINEX is closed to new investors), etc …).

  16. I’m not sure exactly, but I don’t think I’d consider DFA unless it was on the order of a 0.25% annual fee like Steve H. DFA funds aren’t true index funds so you’ll have to buy into their methods too.

  17. Jonathan makes a good point that you will have to buy into their methods. (If DFA isn’t a index fund, it’s pretty darn close) Obviously I have, but that doesn’t mean everybody should. I think the main point of this discussion is that low fees and indexing work. If your investing is down to comparing DFA or Vanguard, you’re ahead of most investors.

  18. Jonathan, where do you invest your 250K for a 1/4 percent. THanks

  19. Sorry, the last question was for Steve H, where do you invest your 250k for dfa funds.

  20. When you say,
    ” where do you invest your 250K”, I’m assuming you mean which DFA broker?

  21. Steve, yes. which dfa broker do you use? was thinking about putting some money with them. do you like your broker and everything they do with the dfa funds. Thanks

  22. I too am strongly considering going with an investment advisor just to get access to DFA. Anyone getting a better deal than 1% advisory fees?

  23. I just moved my accounts from Fidelity to Talis Advisors in Plano, TX to be invested in a DFA portfolio. The portfolio I selected returned 33.02% last year, 26.22% over three years and 24.61% over five years. My fee for the amount invested is .55% a year plus the DFA expenses which are very low. The total is less than 1% per year for this kind of return with low risk. I think I’ll be able to sleep at night now.

  24. I 2nd the request. Whoever gets 0.25% to get hooked up with DFA, please let me know!

    As for Robby, can you share how much $$$ you had to invest? Was it more than $200K?

  25. Yes, it was over $500K. They have a graduated fee schedule with a minimum of $500 per year for smaller investers. A friend of mine had only $25,000 to invest and they were willing to take him for the $500 minimum investment fee. I am very pleased with my advisor. He has researched the tax ramifications of all of the funds I will be going into which are the most highly performing funds but are all in the Morningstar top quartile of fund performers and all above the category in terms of returns.

  26. Robby,

    I just E-mailed Talis to request information and gave them my number to call me. Can you tell me who is your advisor so I can ask for him/her? Also the returns you quoted differed from there all equity portfolio on their website. Did they do a different portfolio for you?

    Also did anyone find out where you can get DFA funds like Steve H for .25% with $250,000 to invest?



  27. My advisor is Greg Schmitz. He presented me with a few portfolios to choose from and I selected the most aggressive which is Greg’s personal portfolio design. When I called him I mentioned the .25 fee with the investor doing all the work and he talked me out of it. He has more than earned the additional basis points, in my opinion. The Talis 100 portfolio is a bit more conservative in design but earns about 8% less per year. Since the risk level is still lower than the S&P 500 on the portfolio I selected I decided to go for the higher returns.

  28. The direct line to Greg Schmitz at Talis Advisors is (972) 378-1792.

  29. Robby,

    I called and talked to Greg today. I really enjoyed talking to him and we are going to talk more on Friday. I am still waiting to talk to a couple other advisors before making my decision.


  30. I just google “fee only dfa” and found this site
    If you have 300K and use the “Self-Directed Investment Management”.
    It’s $90 per month, that 0.3%

  31. I’m pretty sure most of the % quoted here are on an annual basis. So 0.3% x 12 months is 3.6% a year. Not so good 🙂

  32. Sorry, it should be (90*12)/300,000 = 0.36%

  33. Ha, didn’t even bother to do the math, shame on me (nor did I visit the site). 0.36% is not so bad.

  34. Well, if you have $1M, this one even cheaper at 0.25%


    Richard A Ferri is the President of this company. He wrote a few books on index investing.

  35. Yogesh Sharma says

    This is exactly the information I was looking for.
    I am a young investor starting out with investments of 25k in my non retirement accounts.
    I am already convinced that indexing is the way to go.
    I really like the specialized funds that DFA offers.
    I guess my only way to get in is with Talis Advisors for the min fee.
    Any other cheap advisor recommendations for young investors will be appreciated.

  36. I have Smart529 Select account, it provides access to DFA. So far, the performance is better than my other 529 accounts utilizing Vanguard (passive) or American Funds (active).

  37. Hello Folks,

    I have been reading the string of comments on DFA funds with alot of interest. I currently have all my retirement funds with Fidelity as a result of my employer. As a result of a company offered buy out I have left and looking to move my retirment funds. I have met with a few advisors and one of them invests in DFA funds. I was quite with DFA. But as most of you mentioned the DFA advisory fees are a bit steep. This one charges a portfolio building fee, (first yr one time only $250 qtr) an on going retainer fee ($250 qrt) and a per cent of portfolio fee. He has a documented 7 yr avg return of 9.75 after all fees and expenses.
    Will Talis and the others sites mentioned select funds to build your portfolio asset allocation. If they do are they all DFA funds or will they mix in some others. I would not trust myself to select funds and will pay for the expertise. But would like keep these costs down.

  38. My Talis Advisor would have allowed me to invest in other funds as well as DFA. I toyed with China Opportunities which I already owned but decided I would be straying from the indexing approach. Also, my advisor looked deeper into the DFA funds and found plenty of China coverage there. I decided to go with all DFA funds. They will help you design your portfolio. They have several already designed, some with bonds and mutual funds in different percentage allocations.

  39. Robby,

    Just curious how your agressive DFA portfolio faired today? I hope you stayed away from China Opportunities. I am still trying to decide which advisor I am going with. I would love to talk to you more about Talis. If you have a moment my E-mail is tcsturm@aol.com



  40. Robby thanks for the response. I would probably be looking at a conservative to balanced portfolio of equity funds and fixed income. Do you know what Talis’ fee schedule is. Do they do this over the phone or by email.

  41. Well, I lucked out today. My advisor put in the buy for my brokerage account yesterday and I will get the funds as of the close of today when the market dropped 415 points. We have been waiting on the IRA account because a couple of smaller funds that I owned have to go through a lengthy re-registration so I decided to wait a few days to see how this situation plays out. I believe Greg Schmitz would discuss the fee schedule over the phone with you if you give him a call.

  42. I did notice that Morningstar showed the top performing international fund for today was the DFA Japanese Small Company Fund.

  43. How do you folks feel about starting and managing an investment portfolio over the phone and through the internet transactions and e-mail. I live in New England. As compared to sitting down face to face with an advisory.

  44. DCHillman says


    Did you meet with Talis in person to develop your portfolio or did you do it through the phone, email, internet.

  45. I spoke to Greg Schmitz over the phone and felt comfortable enough with him to proceed. The portfolio he and I selected was pretty much what I had planned. I still have not bought the international funds that will go into my IRA. I am waiting for the markets to stabilize somewhat before doing that. I am also concerned about buying a real estate fund now. Pat Dorsey has an interesting video on Morningstar about now not being the time to invest in REITS.

  46. Out of curiosity, what is the actual mix of DFA funds in the Aggressive Portfolio? How tilted to value stocks and international stocks is it? Based on the advertised Talis returns on their website, it appears considerably tilted.

    By the way, DFA currently doesn’t hold any Chinese stocks whatsoever, so you got some bad info. That is one of the reasons their Emerging Market funds are ranked #1 this year (every other active manager had loaded up on China and chased returns to justify their 2% expense ratios)

  47. My advisor, Greg Schmitz, told me that he looked into the DFA funds and said that they do have China stocks in their mix. If you want to call him the number is listed in a previous post. He can also tell you about the portfolio I am invested in. It is basically large, small, international and emerging markets value and will include three regional funds and two real estate funds. DFA has just come out with its international real estate funds.

  48. I am trying to set up some DFA portfolios in morning star to track performance. Does anyone have any good suggestions for DFA portfoloios with percentages?


  49. ifa.com has a bunch of portfolios. Their percentage breakdown, for the equities portion of all portfolios (except portfolios 95 and 100) is:

    20 dflcx, 20 dflvx, 10 dfscx, 10 dfsvx, 10 dfrex, 10 dfivx, 5 dfisx, 5 disvx, 3 dfemx, 3 dfevx, 4 demsx.

    The ports are on an equities vs short-term bond spectrum from 15/85% (portfolio 5) to 0/100% (portfolio 90, 95, 100).

    95 & 100 modify the equities breakdown, with a little more emerging markets and a LOT more small/micro cap.

  50. And in a taxable account, the tax-managed funds DTMEX, DTMMX, DFTSX, DTMVX, DTMIX, substitute for their equivalents.

  51. Jason,

    Thanks for the info on portfolios.

  52. Investor99 says

    hey, currently, i’m with Talis. They’re charging me 0.6% annual fee for $120k. Apparently I negotiated a bad deal, b/c some of you posted 0.55% for $100k balance. i was looking to switch. Anyone has info on Malvern Capital? He posted on his website 0.2% per year. He replied to my email and said my balance is good enough for this plan. Anyone has any experience or heard about him?

  53. Investor99,

    I talked to Talis and I really liked the advisor I spoke to. The fee I was quoted at Talis was higher than what you are paying for a larger asset amount. It may depend on the advisor. I think it all depends on what you are looking for. It sounds like from Malvern Capital website that it is access to DFA funds with no other services or no advice. I have been searching for an advisor and it is a tough decison on what to do. I think that it depends on your situation. I don’t think you will find the best advisor with the best services that is also the lowest cost. Send me an E-mail and I can share with you what I found in my search. tcsturm@aol.com

  54. Has anyone worked with Merriman Capital Management. They have a very informative web site, a huge customer under management portfolio, and are a big advocate of DFA funds.

  55. Merriman offers a free telephone consultation which I found helpful. Ultimately, I went with Talis due to lower fees and the personal relation I built up with my advisor. As of this week I have dollar cost averaged all my money into the funds and I am, so far, very pleased with the results. DFA has a very informative educational web site, as well.

  56. DCHillman says


    Did you work over the internet with Talis to manage your portfolio or was it face to face.
    Any suggestions on financial investment planning over the internet. I am a little concerned with not having a face to face relationship with my financial advisor.

  57. I did all of my negotiations over the phone. I pretty much knew what I wanted to do and was looking for validation and analysis that backed up my thinking. I also needed help on what funds to put in taxable and non-taxable accounts. I felt very comfortable with my advisor and also the president of the company who I spoke with once.

  58. DCHillman says


    Looks like you went with Talis. How long have you been with them, did fees, expenses and portfolio performance match up with what they quoted.
    Is your portfolio all DFA funds from their 20% – 100% model menu, did they mix in any name brand funds.
    How often do you speak with them to review your portfolio, have they suggested changes to your portfolio based on market changes, etc.
    Out of all the DFA financial advisors out there what made the difference for you to select Talis over the others.
    Robby would it be ok to discuss these questions in more detail over the phone or e-mail. (dchillman@verizon.net) Thanks for your help.

  59. My name is Greg Schmitz from Talis Advisors. I sincerely appreciate the compliments and calls I?ve received from this blog, but I?d like to clarify a couple of points.

    First off, although there?s China exposure through particular DFA funds it?s minimal and provided on stock exchanges just outside of China to help control risk. Unlike the Chinese stock exchange, these stock exchanges meet DFA standards on items such as property rights while allowing an investor to benefit from the vibrant Chinese economy without the risk of directly investing in China.

    Secondly, I agree that fees are important, but most importantly is risk-adjusted return net of fees, fund expenses, and tax consequences.

    If you would like any further clarification or have other questions please call me at 972.378.1792 or email me at gschmitz@talisadvisors.com.
    Thanks, Greg

  60. Investor99 says

    hey Tom and others,
    i saw your reply. yeah, malvern capital is 0.2% and it is DIY. But from the data published in ifa.com. I was able to design a better portfolio than either IFA 100 or Talis 100. Talis 100 shows a 5-yr CAGR of 19.35%. I designed my own portfolio and get 28.1% for the same time period. I would rather go it alone and pay the lower fee. Also, with Talis, don’t you have to pay an extra hourly fee or a fixed fee for personalized advice on top of the quarterly fee? My contract says I have to. Hmmm, I think I am a pretty bad negotiator.

  61. DCHillman says

    Folks, based on this blog and the research I have done I have made up my mind on DFA funds. Still working on selecting an advisor. I have spoken with a few of you on Talis and got good reports. I noticed that Rodlykins, KPC, Steve H have all gone with Talis. It would be very helpful if I could follow up with you guys on Talis. Could we follow up on e-mail (dchillman@verizon.net) or phone to discuss.

  62. Investor 99,

    I posted my E-mail on an above post and never heard back from you. Please E-mail me I would like to talk to you about Talis and Malvern.



  63. Structure says

    Anyone can design a portfolio that “outperforms” another based on backtesting. I could easily design a portfolio of actively managed funds that would outperform even a very well designed DFA or Vanguard portfolio if I’m cherry picking funds/asset classes in hindsight. This oversimplified statement ignores the fact that portfolios can only be judged on subsequent performance and that risk adjusted performance is of key importance. How does the Sharpe ratio on your portfolio compare to IFA’s or to Talis? Do you even know how to calculate it or what it means? What matters is portfolio efficiency. Read “Portfolio Selection” by Markowitz if you want to start learning about how real portfolio design works.

  64. Structure,

    Very interesting comments who are you addressing them too. Which advisory firm are you referencing when comparing Sharpe ratios to IFA and Talis. Are they better than IFA and Talis if they are I would be very interested in this advisory firm.

  65. Structure says

    Both IFA and Talis have very well designed portfolios. You’ll be fine with either firm. The point that I’m making is that anyone can design a “portfolio” based on backtesting. For example, a portfolio that consists of simply 1/3 DFA Real Estate Securities, 1/3 DFA Emerging Markets Value, and 1/3 DFA Int’l Small Cap Value will have a higher return than any well diversified portfolio over the past 5 yrs. Of course, it’s much less efficient than the well diversified designs that I’m comparing it to. Designing an efficient portfolio is simply a matter of mean-variance optimization, but it’s very time period dependent and requires some common sense. My comment was really aimed at “Investor99” and his claim of having designed a portfolio that outperforms those designed by an advisor. Unless he has also calculated the standard deviation and the Sharpe ratio, he has no basis for this claim.

  66. Structure says

    While we’re at it, let’s clear up some other misconceptions. First, although they are passive, DFA’s funds are not index funds. The exception is DFA Large Company, which is simply an S&P 500 index fund. DFA doesn’t bother much with this asset class (large cap growth) because their focus is on asset classes with higher rates of return based on the Fama/French research — value and small cap. Also, the advisors that work with DFA are not brokers. They are registered investment advisors. There is a big difference between the two and if you don’t understand it you should spend the time to educate yourself.

  67. Structure, thanks for sharing your investment experience. You can see where I am headed based on my submissions. You mentioned that IFA or Talis are good choices. Do you have another that you prefer. Also in reference to DFA portfolio Sharpe ratios is there a bench mark I should try to get to for portfolio efficiency. I know they will be different based on the portfolio mix from 20/80 to 100% equity mix.

  68. Structure says

    I’m not here to recommend advisors, just to clear up misconceptions about DFA and the advisors that they work with. Sharpe ratios are useful for comparing relative efficiency of porfolios with the same or very similar equity/fixed income mix. Most DFA advisors are well acquainted with the academic research that shows that short-term fixed income is the best choice to dampen volatility in a portfolio. When you compare the difference between DFA advisors in fixed income performance, it’s minimal. What matters most is the equity portfolio efficiency. I also noticed that someone here stated that the Talis portfolio design must be tilted toward value and international equities to achieve the performance figures being advertised. A tilt toward small cap and value will produce higher returns over time because value and small cap are riskier asset classes. There is no long-term performance difference between developed international and domestic equities. Most advisors underweight developed international equities because they don’t understand their function in the portfolio — diversification. Also, broad exposure to developed international equities is a far less efficient diversifier than international small cap and value. A good advisor will understand this and incorporate these concepts into the portfolio design.

  69. Investor99 says

    Yes, definitely calculated mean-std. dev. and sharpe ratio. The biggest flaw with ifa.com’s calculation is that they calculated std. dev. on an annual basis. big mistake. dfa funds are not intended to be ‘traded’. if you’re buying dfa funds, you really ought to be holding them for at least 5 years. Therefore, calculations should be based on 5-yr rolling periods. The portofolio I designed has lower std. dev. and higher means in all 5-yr rolling periods. I can easily tell you one improvement, in ifa100 they have 20% allocated to microcap. that fund does a double whammy. it drags down the mean, and drives up std. dev. don’t include that fund, and right there it’s a huge improvement. i have to admit, all the DOE i ran and conclusions are based on past performance data, and as you all have heard before…past performance doesn’t guarantee future results

  70. Invester99 you have generated a lot of good discussion. Could you contact me by email. dchillman@verizon

  71. Structure says

    Investor99, I agree that DFA’s funds are designed to be held for long periods of time. That’s really a basic tenet of MPT. I don’t think any advisor that works with DFA would disagree.

    IFA actually calculates standard deviation monthly, then annualizes the number by multiplying by the square root of 12. IFA uses that method because it presents data that is consistent with the data on competing funds from Morningstar. You are absolutely correct that standard deviation is very time period dependent.

    Again, it’s pretty simple to create a portfolio in hindsight that will outperform an any “live” portfolio. But, I agree that 20% allocation to any asset class is excessive. You are also right about the performance of the micro cap fund. But, if you buy into the Fama/French research (and if you don’t, you probably shouldn’t be investing in DFA funds), then you would have to expect that stocks in the 9th and 10 CRSP deciles (microcap, according to DFA’s definition) would have a high rate of return over long periods of time. In fact, this happens to be the DFA fund that has been in existence for the longest period of time (since 1/82). From 1/82 through 4/07, the annualized return has been 13.99% with annualized standard deviation of 18.99%. Not an impressive excess return over the S&P 500 with a lot more risk over this time period, which included some horrible years for this asset class. But, looking at longer term data (1/26 through 4/07), the CRSP 9-10 deciles outperformed the S&P 500 by about 2.34% (annualized). The bottom line — I agree with you that 20% is way too much, but it’s an asset class that should be included in the portfolio. In my opinion, you get a lot more efficiency out of the portfolio with a value tilt than a small cap tilt. That doesn’t mean that you don’t use small cap, but you use it appropriately.

  72. FYI there is no China in any DFA funds. Robby and his advisor are just plain dead wrong about that.

  73. Lets not forget the typical advisor fees (1.5/250000) on top of the fund fees required to own DFA with advisor fee % decreasing as the account value increases. Basically a wash for the investor. Considering that, would Vanguard come out on top on a cost basis valuation?

  74. Bill,

    There are a number of holdings within DFA’s emerging markets funds (including DFA Emerging Markets Portfolio, DFA Emerging Markets Small Cap, DFA Emerging Markets Value, and DFA Emerging Markets Core Equity) either headquartered in China or headquartered outside of China but significantly impacted by China’s economy. Of the holdings headquartered outside of China, some are impacted by having key business segments operating in China and some simply by trading with China. All holdings I am referring to trade on stock exchanges outside of China (such as the Taiwan exchange or the Hong Kong exchange). It is important to make the distinction between stocks trading on the Chinese stock exchange (which DFA does not engage in), and stocks trading on other exchanges (Taiwan, etc.) with either direct or indirect exposure to China’s economy.

    Here are just a few examples of DFA Emerging Market holdings with China exposure:

    China Synthetic Rubber trades on the Taiwan exchange and is actively developing its market in China.

    China Life Insurance Company Limited is China’s largest life insurance company, a leading provider of annuity products and life insurance for both individuals and groups, and a leading provider of accident and health insurance. It trades on the Taiwan exchange.

    China Metal Products has principal business units operating in mainland China.

    China Petroleum and Chemical – a very large state-owned petroleum company headquartered in Beijing, China.

    Great China Metal Industry Corp – headquartered in Taiwan with subsidiary businesses in Shanghai, China (Shanghai United Can Co., Ltd.), and Jiangsu, China (Huatong United (Nantong) Plastic Industry Co., Ltd).

    China Manmade Fibers – headquartered in Taiwan but has exported as much as 100,000 tons of polyester staple fiber to China.

    ChinaTrust Financial – headquartered in Taiwan, and per Investor Relations, ChinaTrust Financial is indirectly impacted by China’s economy.

    Hope this helps,

  75. San Francisco Business Times reports that the California Public Employees Retirement Systems (CALPERS) has amended its policies to permit Alliance Bernstein, DFA and Genesis to buy stocks in China, Egypt and Venezuela and other developing countries effective January 1, 2007. This appeared on the SFBT web site.

  76. Structure says

    The “typical” advisor fee is not 1.5% for any portfolio size, certainly not at $250K. It’s more like half of that. A portfolio of DFA funds will also have an expense ratio that’s slightly higher than the index portfolio (ETF or open end mutual funds). That, plus the advisor fee for small accounts ($250K range) is about 1.0%. If you’re paying more than that, you’re probably working with an “advisor” that doesn’t have a direct relationship with DFA. There are lots of them out there. They farm out the portfolio management to a company that works directly with DFA and they add another layer of fees.

    Because a properly constructed portfolio of DFA funds can have much stronger exposure to both value and small cap, the expected return over a significant period of time will be well above what can be achieved through indexing. Depending on how much additional factor exposure the portfolio design achieves, the return will be 2-4 percent more than the index based portfolio. It’s very simple to see that, even when adjusted for higher expense ratios and advisor fees, this makes sense.

    Index funds have many other issues that make them less than ideal investment vehicles when compared to DFA’s structured asset class funds. Index funds must trade positions when the index is reconstituted because the primary goal is to track the index. The cost of the trade can be signficant because it’s all done at the same time by all of the funds tracking the index and it tends to have a huge impact on the stock of the company being included/excluded from the index. There is also the spread to consider. None of this is reported in the fund expense ratio. DFA funds do not suffer from this problem and can frequently have a negative trading cost — unheard of in the mutual fund industry.

    It’s good to have this forum to discuss DFA, but there is a huge amount of misunderstanding/misinformation about DFA being presented by “do it yourself” investors that don’t have all the facts. Caveat emptor.

  77. VicfromATL says


    I would like to know whom you went with for DFA funds?


  78. VicfromATL says

    I just came to know that you can get DFA Funds through CFP selfworthfp (dot) com (uses Schwab), and charges less than what IFA charges about ? of 1%, and they let you start with less than most others min of 100K or 250K. This guy had 65K.

    Has anybody decided yet on which one is the most cost effective and also a good adviser?

  79. Anyone from here have personal experience with IFA. I am considering on going with them, but would like some thoughts from members here, if any.

  80. If I haven’t said it before, John Gorlow at Cardiff Park Associates (www.cardiffpark.com) charges a flat rate, usually around $1,200 per year, to manage your money. It will be more for more complex financial situations, but still… this is

  81. I wanted to provide you with an update released today related to DFA and their new policy for China.

    Until recently, China did not meet DFA?s criteria for eligibility due to concerns such as unreliable property rights, unsatisfactory accounting standards, and a poorly developed stock exchange infrastructure.

    After monitoring developments in China over the past few years, two senior DFA portfolio managers have recently met with economists, analysts, and stock exchange officials in Shanghai, Beijing, and Hong Kong. Recent reforms have eased investor related concerns, and as a result, DFA has concluded that China now meets their criteria for investing.

    For the foreseeable future, DFA will restrict its eligible universe to a group of just over 200 Chinese equities that trade in markets outside of mainland China, typically Hong Kong. This universe is large enough to be divided into diversified strategies with distinctive large cap, small cap, and value characteristics, consistent with their approach in other markets.

    They feel that China may turn out to be one of the larger markets in the emerging markets strategies. As of March 2007, it was the third-largest country in the MSCI Emerging Markets Index, after South Korea and Taiwan.

  82. Structure says

    The focus on advisory fees here is amazing. What matters is net risk adjusted return.

    Let’s assume that the risk free rate of return is 4.0%. We’ll further assume, for the sake of simplicity, that this is a retirement account and taxes aren’t a consideration.

    Advisor A’s portfolio has a return of 15% with total expenses of 1.5% and a standard deviation of 14%; Advisor B’s portfolio has a return of 14.5% with total expenses of 1.0% and a standard deviation of 13.7%; and Advisor C’s portfolio has a return of 16% with total expenses of 1.5% and a standard deviation of 14.5%.

    Which advisor would you choose? Why?

  83. Structure,

    False dichotomy. If you *really* believe that your stock advisor can mix DFA funds with high alpha (essentially, an extra 1% of return from 0.5% standard deviation boost), then hell, pay them 2% a year.

    My view, and the view of most DFA investors, is that we need DFA funds to best Slice and Dice the market to get quasi-indexing in those areas not provided by Vanguard.

    To that point, expenses will be the most controllable factor.

    If you’re going to pay more than 0.25%, then you’d better be sure you’re getting what you pay for.

  84. Structure says

    Alpha does not exist. A portfolio’s return is only a matter of exposure to risk. If you believe in alpha, why would you pursue a passive investment strategy?

    The issue is portfolio efficiency and there are vast differences between advisor implementations. If an advisor’s portfolio design isn’t even close to the efficient frontier, why would it surprise you that another advisor’s portfolio could outperform it with only a slight (or even without) increased standard deviation?

  85. Structure says

    Let’s clear up the next misconception. The vast majority of DFA investors do not use DFA’s funds to add specific risk exposure to a Vanguard portfolio. The vast majority invest in a portfolio designed by an advisor that is either mostly or all DFA.

    DFA provides broader and more reliable exposure to asset classes than a simple indexing strategy can. With very few exceptions, DFA’s funds have outperformed the corresponding benchmark index over any significant time period. Even in cases where the performance is similar to the index, the DFA structured asset class approach provides more reliable correlation and less likelihood of future underperformance due to asset class dispersion.

    Further, the ability to tilt the developed international and emerging markets allocation toward small cap and value results in lower variability of return at the portfolio level than can be achieved by using a broad index based approach to international diversification because the international small cap and value asset classes are significantly less correlated to US markets.

    You should always be sure you’re getting what you pay for, but you need to have a clear understanding of how to evaluate it.

  86. My advisor works through TDAmeritrade. I recently came into a substancial inhertitance that doubled my portfolio to over the 1mil mark. I had long time holdings of Exxon, Tex Util, Lockheed, JP Morgan/Chase, IBM, Duke Energy as my major holding with Exxon being about 25% of preinheritance portfolio. All of them were DRIPS. Vangard was my choice for Roth IRAs.
    I was content with the situation and over 20 years according to the Advisor doing as good as DFA and the market as a whole. It was a somewhat difficult decision to make the switch never having had anyone manage my portfolio before.
    Peace of mind at 52 and better risk portfolio exposure and a 4yo son were the factors. Did I make the right choice? The next 20 years will tell. What is your opinion? Thanks

  87. Structure says

    Almost certainly, if your advisor has any idea what he’s doing.

    TD Ameritrade is only the custodian and largely irrelevant. Most DFA advisors use the institutional divisions of Fidelity, Schwab, Fiserv, or TD Ameritrade to hold client assets.

    When your advisor told you that you had done “as well as the market” over 20 years, was that a simple analysis based only on return? You were probably taking a lot more risk than necessary to generate those returns.

  88. The cap gains taxes generated with the switch were quite a shock. An extra 20k due to AMT for 2007, OUCH! Getting into the mind set after going it alone for so long is taking some getting use to. The fees are another thing in themselves. The fortunate thing about the Advisor is that coincidentally a very good friend happens to use the same firm and has been for 10 + years. I didn’t know this until a few weeks ago and just mentioned in passing. I will have to get together again and see what he says. Must be content having been there this long. Thanks for the advise.

  89. Structure says

    The good thing about the capital gains is that it’s probably the lowest capital gains tax rate that we’ll see in our lifetime. The AMT hurts, though. This is NOT what the AMT was designed for. This needs reform and it needs to be done now.

    The client retention for advisors using DFA is extremely high. Good luck with your advisory relationship.

  90. I was wondering if anyone reading this knows how to get DFA funds in Canada. What advisor sells them? For how much?

  91. Structure says

    Competent advisors don’t “sell” DFA funds. They work with clients to design portfolios based on DFA’s funds that meet the goals and risk capacity/tolerance of the individual client by controlling the exposure to the risk factors that drive portfolio return. The fee that you pay is for the advice that you receive. It varies by advisor.

    Go to DFA Canada’s website: http://www.dfacanada.com and click on “online form” under the heading “Find an Advisor” on the right side of the home page.

  92. Structure, I have enjoyed reading your comments about DFA funds over the last several months. Thank you for sharing your superb knowledge of portfolio diversification, risk and efficency. Especially the ideas about advisor fees. Perhaps I missed your connection to DFA funds, but where do you fit into the matrix? CLIENT-> INTERESTED PARTY->DFA ADVISOR->DFA FUND, none or all the above. The information you have provided has been valuable in my research for a new advisor.

  93. Structure says

    Thanks, Mike.

    I’m just attempting to clear up the misunderstandings about DFA and DFA advisors that seem to be common on this type of site. I don’t work for DFA and I’m not here to attempt to steer anyone to any particular advisor.

    There are several good advisors that have been mentioned here and you should do your own due diligence. The advisor should be able to clearly articulate why they use a particular asset allocation. I would recommend against using an advisor that does not have a direct relationship with DFA, as their fees will generally be higher and the turnkey asset manager portfolios that I have seen don’t impress me. If you need financial planning, go with a firm that has advisors with CFP or CPA/PFS designations on staff. If you’re really just interested in asset management, these designations don’t mean much. If you want performance reports, be sure that the firm has that capability.

    Good luck with your search.

  94. I have a question for everyone about DFA’s Core Equity funds being used in a taxable account. I thought that they were supposed to be fairly tax-efficient, but now I hear that DFA is going to unveil a “tax-aware” Core Equity fund, at least for the U.S. The core equity funds in general are quite new, but do people think they should be used in a taxable account for the “core” equity holding? (as opposed to some of Vanguard’s total-stock-market funds for the U.S. and int’l)

  95. Structure says

    The core equity funds from DFA are very tax efficient by design. Purely from a tax efficiency standpoint, it’s a no brainer. Here’s why: In the traditional portfolio construction using asset class specific funds, fund holdings move outside of the hold range of a particular fund/asset class and must be sold. This creates a capital gain that must be distributed. In many cases, the company that was sold fits the hold parameters of another fund in the portfolio. Think of a company that becomes too large to be held in a micro cap fund but now should be held in a small cap or small cap value fund. In the core implementation, this company would not be sold and repurchased — it simply moves to a different “bucket” in the core fund. This significantly increases tax efficiency.

    There are other issues with the core funds, most notably how to achieve a target factor exposure, that a competent advisor will understand when constructing a portfolio. As with many good questions, there isn’t a simple answer. Adding some exposure to small cap/value by including the asset class funds with the cores can tilt the factor exposure, but at the cost of tax efficiency.

    The decision about whether to use DFA or Vanguard as the core holdings for a portfolio comes down to indexing versus asset class investing, which has been discussed. This is essentially the same question.

    Once again, working with competent advisor to determine the right portfolio construction for your particular circumstance is important. Note that you won’t find this with an “advisor” that outsources portfolio management or that sells access to DFA’s funds for the lowest fee. Typically, you won’t find a lot of portfolio construction expertise at small firms that focus on financial planning. Finding the right advisor is big factor in determing success with a DFA portfolio. Unfortunately, it is not a decision process that most individuals are well qualifed for. As a result, the process becomes vastly oversimplified — the lowest fee, for example — or, it becomes driven by what is essentially advertising — the most expensive website. Perhaps, a relevant topic of discussion would be how to evaluate DFA advisors.

  96. Structure that is the $64,000 Question.

    “Perhaps, a relevant topic of discussion would be how to evaluate DFA advisors”.

    I have asked that question many times. The standard answer I hear is to ask other people who use the advisor, check his background with SEC, get comfortable with the advisor, get fee only advisors, etc, etc. Once you have done you’re basic research and everything checks out, how do I identify the great DFA advisors from all the rest of the DFA advisors. I am sure there are some very good DFA advisors as well not so good advisors.

    In today’s complex investment world you need a MBA in financial planning just to know what you should know about financial/investment planning to ask the right questions. If I want to buy a car or electronics with the best technology and best market price/value I get an analysis report with all the comparisons to help me make an educated choice. I know this is not a fair comparison because of all the varibles in financial planning. But you get my point.

    The average invester can do all the basic requirements research but when it comes to choosing a DFA advisor with the best track record and skills to build the best performing portfolio, how do evaluate all the DFA advisors.

  97. Mills Chapman says


    Thanks for your post. If “The core equity funds from DFA are very tax efficient by design,” then why, I am wondering, is DFA planning to launch a “tax-aware” version, at least one for the U.S.? http://www.diehards.org/forum/viewtopic.php?t=4676&mrr=1186525223

    I am just about to move my portfolio (from indiv. stocks), and since it is all taxable, I am feeling gun-shy about the core equity funds if DFA has plans for tax-aware versions. Any follow-up thoughts would be great. Thanks.

  98. VicfromATL says

    I spent almost two months deciding between Vanguard Do-it-urself approach vs Advisor who has access to DFA funds.

    I have been with Vanguard (Do-it-urself ) for almost one year but wanted to align all of my portfolios. I felt that there’s room to improve.

    Finally going with an advisor (access to DFA) as he brought up many good points which didn’t come up during my analysis or help from various blogs.

    It does make a difference when you have an advisor..or a good advisor with access to DFA Funds..that too at low cost.


  99. Structure says

    Mills — A tax “aware” US core equity fund would be pretty simple for DFA to create and has the potential to be exceptionally tax efficient. Since it’s Larry Swedroe that posted the information, it’s very credible. A portfolio constructed primarily from the core funds is already significantly more tax efficient than the individual structured asset class fund approach, but a tax managed core would be even better.

    Vic — It’s good to hear that you’ve found an advisor that has been able to add value beyond simply providing access to DFA. That’s the advisor’s role and there are some very good ones out there. The do-it-yourself index fund approach is good. It’s certainly a step beyond active management using a broker and/or actively managed funds. But, a well designed DFA portfolio will outperform an index based approach by more than a reasonable advisory fee.

  100. VicfromATL says

    Thanks Structure.

    Also, what I liked about the advisor is that he wasn’t focussed on making money. Seemed like he does it because he likes it. I mean we spent hours on the phone, never felt like I was pushed around or he was in a rush to see other clients

    He helped in many ways to reduce the total cost as it was a big concern for me.

    Also, not only in the initial stage but he’ll keep an eye going forward so that we can tweak the portfolio depending on how my financial situation changes.

    So I’m very happy.



  101. Agreed, Fabian. It’s not simple, and the process is going to vary a bit for each individual depending upon goals/needs. Unfortunately, there is no report that exists that allows a potential client to compare DFA advisors.

    Everyone should first be certain that they are working with an independent fee-only Registered Investment Advisor (RIA) and not a broker that is using an RIA as a turn-key asset manager and tacking on additional fees. Always check out the RIA firm with the SEC (for federally registered firms) or the state regulatory body (for state registered firms). You can get contact info for state regulators via the NASAA website.

    If you need financial planning work, select a firm that has a planner with CFP or AICPA/PFS credentials. If you don’t need financial planning and are really just interested in portfolio management, these designations don’t really matter much.

    Custody options are not much of a consideration unless you have a very small portfolio where transaction costs can be a factor.

    An advisor should be able to show you the results that recommended portfolios have achieved over a reasonable amount of time. Beyond the return, what matters is the efficiency of the portfolio design. Any competent advisor should be able to explain the structure of the portfolio, the risk as measured by standard deviation, and the efficiency as measure by the Sharpe ratio. If the advisor can’t clearly articulate this, move on.

    Most established firms have performance reporting capability and carry E&O insurance. These may or may not be important to you, but they are something to consider.

    If an advisor (and there is at least one very large DFA advisor that does) advocates market timing, run (don’t walk) away as fast as you can. Ditto for any dynamic/tactical asset allocation scheme.

  102. Structure:

    Could you discuss “market timing” in more detail.

    “If an advisor (and there is at least one very large DFA advisor that does) advocates market timing, run (don?t walk) away as fast as you can”.

  103. VicFromATL,

    Would you mind sharing which DFA Advisor you went with.

  104. Martket timing is simply the effort to adjust your exposure to equity risk by attempting to predict future market price movements. Market timing is controversial, to say the least.

    The academic viewpoint is that it is a completely futile attempt to predict events that are essentially random. Several independent organizations have tracked market timers performance (in some cases over thirty years) and have found that their results are no better than expected by chance – and frequently worse. In a famous study, market timers were given two sets of charts – one set was of real stock prices and the other was a set of charts produced by a random number generator that was programmed to approximate the standard deviation of equities. The “experts” were unable to distinguish between the two. Most serious investors wrote off market timing as a viable strategy a long time ago.

    Any “advisor” that advocates a market timing scheme should be avoided.

  105. VicfromATL says


    I researched various advisors for a month or two and finally went to with Rahul Chahal @ Self Worth (http://www.selfworthfp.com).

    He was recommended by ppl who used him for last few years and were very happy with the results.


  106. Structure,
    Thanks for your help. 🙂

  107. This pgae has very good information about DFA advisors

  108. can you please recommend any DFA advisors in Austin. the website shows none in Austin, which seems pretty strange

  109. Don’t expect any of these advisors to save you when your self-directed portfolios fizzle. Most investors would benefit from using a full service DFA advisor and not DIY.

  110. This is a great thread! I found more useful information here than I have in the last month of researching using search engines.

    1. FYI- The Malvern web site does specifically include reference to DFA access only for .20%, the lowest by far I have found in over a month of searching. However, I sent an e-mail to Malvern Capitol and got the following response:

    ?Thanks for your interest. I have moved to Utah and am not accepting any new clients until at least January. I will be happy to talk with you at that time. I’ll attach an email I sent to clients to provide you with a bit of background. I will look forward to hearing back from you.

    Take care, Karl.

    Karl Ashliman, CFP
    NAPFA-Registered Financial Advisor
    “Financial Advice with Integrity”

    We are moving from Pennsylvania to St. George, Utah in early August. My business, MALVERN CAPITAL MANAGEMENT, LLC, will remain intact and move right along with us. I don’t anticipate any changes other than a new phone number and address.

    My new home office number in St. George will be 435-656-0718. This number should be operational by August 15th at the latest. My email, Karl@MalvernCapital.com will remain unchanged.?

    2. I spoke to Greg Schmidt at Talis. He will probably be posting here soon.

    The firm?s fee is NOT .55% for DFA funds! That was apparently a special situation brought on by a merger or some such. I was quoted a fee of .85% on funds managed at the $150,000 level.

    Greg is very responsive, knowledgeable and stresses customer service. I highly recommend that anyone needing a full service Investment Advisor contact Greg.

    Another great possibility for DFA Access+ seems to be the new site:


    This is a relatively new ?startup?, formed in partnership with Scott Burns, the syndicated financial columnist to further his ?Couch Potato? investing strategy. Their portfolio mixes seem to be on a small/value tilt with a limited number of DFA funds in each portfolio, as opposed to say, IFA. Your securities are held at Schwab Institutional, so there is no ?risk? associated with investing with a ?startup?.

    You get personal attention, portfolio development and management rebalancing one time a year, reports and a personal portfolio review of your existing holdings. This review and portfolio construction includes assets not managed by their firm into your total asset allocation. In addition an investor can go directly to the Schwab Institutional site, and their holdings, they just cannot trade.

    Most importantly, their minimum account balance is $50,000 and their fee structure is very reasonable.

    From their site: ?AssetBuilder investors pay a portfolio construction and management fee that ranges from 50 basis points down to 25 basis points, depending on the size of the account. AssetBuilder investors also pay the cost of the underlying mutual funds ((and the transaction fees to set up you account at Schwab initially)). Add the two and your total cost as an AssetBuilder investor will probably be as much as 150 basis points lower than what most investors experience.

    AssetBuilder?s fee table
    Amount of Assets Invested Annual Fee
    $ 5,000.00 – $ 49,999.99 .50 of one percent (50 basis points)
    $ 50,000.00 – $ 249,999.99 .45 of one percent (45 basis points)
    $ 250,000.00 – $ 599,999.99 .43 of one percent (43 basis points)
    $ 600,000.00 – $ 999,999.99 .40 of one percent (40 basis points)
    $1,000,000.00 – $3,999,999.99 .30 of one percent (30 basis points)
    $4,000,000.00 and above .25 of one percent (25 basis points)

  111. Ouch!

    I did not see Rick’s comment until after I had posted! I believe Rick is a man on a mission, and for the most part, I agree with him.

    The mission seems to be do not use DFA ?Access? only Sites?. I believe that Rick specifically mentioned assetbuilder.com as the latest ?fad? in DFA access sites on a similar board. I have seen Rick?s posts wherever I have traveled over the last several weeks. I believe he is published author and is one of the country?s foremost experts on Asset Allocation Theory. In all fairness, my experience with AssetBuilder.com is that they are squarely in the middle between ?Access Only? and ?Full Service?. Specifically, you need to know what you are doing if you intend to invest through them.

    I only posted to further, and update the thread. However, personally I intend to use a full service Independent Investment Advisory firm, such as Rick?s or Greg?s at Talis.

  112. I have enjoyed reading the discussion on DFA Funds and advisors who have completed their research and concluded that these funds are best for their clients, even though DFA does not pay them to do so.

    I did not notice much discussion as to why DFA has chosen this path of working with advisors for their funds. Jonathan stated above, “I believe this is to avoid the performance hit on their funds from any active trading by untrained investors.” This is a small part of the reason. A more important reason is that good advisors reduce or eliminate the negative impact of emotions on investor’s portfolio.

    “The investor’s chief problem – and even his worst enemy – is likely to be himself” – Graham, Benjamin (1894-1976) Legendary American investor, scholar, teacher and co-author of the 1934 classic, Security Analysis and mentor to Warren Buffett

    Here is some text from my site that further explains.

    The fund tracking service Morningstar started disclosing these “investor returns” in 2006. On the Data Definition page of their web site, they state that “Morningstar investor returns (also known as dollar-weighted returns) measure how the typical investor in that fund fared over time, incorporating the impact of cash inflows and outflows from purchases and sales. In contrast to total returns, investor returns account for all cash flows into and out of the fund to measure how the average investor performed over time. Investor return is calculated in a similar manner as internal rate of return. Investor return measures the compound growth rate in the value of all dollars invested in the fund over the evaluation period. Investor return is the growth rate that will link the beginning total net assets plus all intermediate cash flows to the ending total net assets.”

    Now that Morningstar is tracking such data, investors bad behavior is finally quantified, as well the advantages of using a passive advisor who helps reduce investor error. In the Morningstar Indexes Yearbook: 2005, they analyzed how the average index investor did on their own versus those that are guided by an advisor using asset class index-type funds from Dimensional Fund Advisors. Here is what they had to say:

    “Consider the success Dimensional Fund Advisors (DFA) has had in selling its funds through advisors who undergo training on the merits of passive investing and in portfolio construction theory. Consider that over the past decade the
    dollar-weighted return of all index funds was just 82% of the time-weighted return investors could have gotten with
    those funds. Yet, the figures for DFA are much better. In fact, the dollar-weighted returns of DFA funds over the past 10 years are actually higher than their time-weighted returns [see Table 1-3]. Suggesting advisors who use DFA encourage very smart behavior among their clients, even buying more out-of-favor segments of the market and riding them up, rather than buying at the peak and riding the trend down, which is usually the case with fund investors.” (See Click Here

    Also, there are significant differences among DFA advisors beyond their fees, as many have eluded to above. What was not discussed is the additional risk of low cost advisors, such as their lack of understanding of the many concepts to properly select risk levels for clients, construct optimal portfolios at each level of risk and to optimize cash flow and rebalancing decisions and costs of both fees and taxes and lack of risk maintenance. Finally, do they have a record of actually doing what they say will do. Can they show you client returns from 5 years ago that kept pace with their portolios over that period? Their can be a high cost for low cost advisors that can easily exceed the differnce in fees. Investors need to be comfortable that an advisor really understands all these concepts. There is a fair price for investment advice. John Ruskin put it very nicely when he said,

    “It?s Unwise to pay too much?
    But it?s worse to pay too little. When you pay too much, you lose a little money ? that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot ? it can?t be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better.

    – Mark

  113. Mark,

    I would like to take this opportunity to thank you for the wealth of knowledge and information contained on your website! You site is where I began my learning process on the importance of asset allocation.

    1. Do you plan to use the new DFA “Tax Aware US Core Fund in your portfolios soon?

    2. The information as to exactly what one receives for the Investment Advisory fee is somewhat difficult to ascertain on the Site.

    There is general information under “Ten reasons to hire an?. independent fee only advisor, but I cannot find a link on the site to a contractual or other document that spells out precisely what one receives.

    I am specifically interested in the nature and level of details of quarterly reporting and timing on portfolio review and rebalancing. Can you provide guidance?

    Keep up the good work!

  114. Investor99 said that: “The biggest flaw with ifa.com?s calculation is that they calculated std. dev. on an annual basis. big mistake. dfa funds are not intended to be ?traded?. if you?re buying dfa funds, you really ought to be holding them for at least 5 years. Therefore, calculations should be based on 5-yr rolling periods.”

    IFA does show 5 year standard deviations for monthly rolling periods, along with 21 other periods from monthly to 50 years, and it is shown for 20 portfolios. See the 5th column on this table, Click Here. Also see this dynamic chart that shows the distribution of about 500 monthly rolling periods from 1 to 12 years, for 3 different portfolios.

    Enjoy, Mark

  115. Mark makes several important points. The comments about low cost advisors are particularly applicable to many of the participants here. The costs associated with operating a Registered Investment Advisor firm are substantial IF the firm hires and retains quality employees, carries the proper errors and omissions insurance, maintains an effective compliance program, and provides robust reporting capability. Most of the low cost advisors out there don’t do any of this and, as the Malvern Capital situation illustrates, may simply disappear without warning when it’s time to move the family to another state. I wonder what kind of access this company’s clients have to their advisor during this period of time.

  116. Hi Skip, Thanks for your kind words. Here are my responses to your questions:

    1. Do you plan to use the new DFA ?Tax Aware US Core Fund in your portfolios soon? We prefer to use the targeted value, because of the great tilt to small value.

    Here is the description of the fund:

    The Tax-Managed US Targeted Value Portfolio is a no-load mutual fund designed to capture the returns and diversification benefits of a broad cross-section of US small and mid cap value companies, on a market-cap weighted basis. The Portfolio invests in securities of US companies smaller than the 500th largest company in the market universe based upon market capitalization. The market universe is comprised of companies listed on the New York Stock Exchange, American Stock Exchange, and Nasdaq National Market System. After identifying the size breakpoint, a value screen is applied to the universe. Securities are considered value stocks primarily because a company’s shares have a high book value in relation to their market value (BtM). This BtM sort excludes firms with negative or zero book values. In assessing value, additional factors such as price-to-cash-flow or price-to-earnings ratios may be considered, as well as economic conditions and developments in the issuer’s industry. The criteria for assessing value are subject to change from time to time. The Portfolio seeks to delay and minimize the realization of net capital gains, particularly short-term capital gains, in order to minimize taxable distributions to investors.

    2. The information as to exactly what one receives for the Investment Advisory fee is somewhat difficult to ascertain on the Site. Here is a paragraph off our home page that provides a summary:

    IFA adds value through matching people with portfolios by carefully qualifying and quantifying 5 dimensions of an investor’s Risk Capacity and matching it to 5 dimensions of a portfolio’s Risk Exposure. This process produces investor-specific optimal returns by applying the IFA proprietary concept of 10dRisk?. IFA obtains academically identified capital market rates of returns for its clients from about 16,000 public companies in the U.S. and about 40 other countries around the world. IFA then designs highly tax-managed and low cost trading strategies, maintains ongoing proper risk exposures through rebalancing, manages cash inflows and outflows, and provides online monthly and inception to date detailed measurements of client performance relative to the IFA Indexes and other traditional benchmarks. This ongoing reporting on performance, gains, income and tax reporting is exclusively available at IFA and adds significant value since measurement is essential to improvement.

    3. I am specifically interested in the nature and level of details of quarterly reporting: CLICK HERE AND FOLLOW THE INSTRUCTIONS, SEE MY FOLDERS FOR QUARTERLY REPORTS (or call me to discuss)

    4. and timing on portfolio review and rebalancing. Can you provide guidance? Step 12 has these 2 sections on Rebalancing Portfolios:

    12.2.3 Rebalancing Portfolios

    Rebalancing a portfolio is one of the most important factors to achieving long-term investing goals. As explained in this 12-Step Program, it is best for an investor to hold a portfolio that matches personal Risk Capacity?, a component that can best be measured through a Risk Capacity? survey. For optimal returns, asset allocation within a portfolio should be based on an investor?s capacity for risk. Matching investors with portfolios is a critical element to optimal investment performance.

    To maintain a portfolio?s asset allocation, periodic rebalancing must be done to ensure that the portfolio continues to reflect the level of risk an investor is willing or able to take. After a thorough evaluation of Risk Capacity?, an investor may be directed to an investment allocation of 65% stocks, 35% fixed income. After a year of bull market conditions, the stock?s allocation value rises to 75% with fixed-income at 25%.

    This shift in asset allocation is to be expected, as asset class values change and grow at different rates. Rebalancing back to the initial allocation keeps the portfolio in balance for consistent risk exposure. In this example, the allocation would balance back to 65% stocks and 35% fixed income. Rebalancing in this particular case would entail selling some stock and buying more fixed income. The purchase of fixed income could also be accomplished by using additional cash on hand to invest.

    Selling stocks that are performing well and buying more of the asset classes that are performing poorly is often difficult for investors, as it seems to contradict common sense. This resistance to rebalancing often leads investors to either do nothing, or to sell the perceived losers and buy more of the winners, going completely against the prudent principle of rebalancing. Rebalancing often involves buying low and selling high. Many investors make the costly mistake of doing the opposite, buying high and selling low, resulting in lower returns in the long run.

    In the face of a fluctuating market, it is important to maintain a portfolio?s target asset allocation in order to control two important factors discussed throughout this 12-Step Program. These two factors are risk and return. Without rebalancing, portfolios will tend to become over weighted with some indexes, creating a change in risk. Rebalancing allows investors to take advantage of favorable time periods for each asset class, resulting in a more steady, less volatile performance.

    A portfolio that becomes more or less risky due to lack of rebalancing also leads to less optimal returns, defeating the purpose of investing in a risk appropriate portfolio in the first place.

    There are certain times when it is wise to consider changing a portfolio?s target asset allocation because of a change in an investor?s capacity for risk. These times include:
    a) when investment goals change
    b) when income level significantly changes
    c) when number of dependents changes
    d) at retirement
    e) when life conditions change – medical, emergencies, etc.
    f) when short-term vs. long-term expenses change

    12.2.4 Rebalancing Formula

    The logic behind rebalancing is that it maintains a consistent level of risk exposure. There are several rebalancing formulas that are used in the investment industry. Although rebalancing is necessary to maintain an optimal portfolio, it can incur transaction fees and taxes. Rebalancing is recommended either 1) annually, 2) when opportunities for new investments arise, or 3) when a portfolio significantly shifts out of balance.

    What is considered a ?significant imbalance? depends on what formula is used. One common approach is the 5 percent/25 percent variance trigger. This rule states that it is time to rebalance when an asset class either a) moves an absolute 5% or b) 25% from its original allocation percentage, whichever comes first. Rebalancing among several taxable and tax-deferred accounts is a very complicated process. A highly sophisticated spreadsheet is required with many factors to be considered, such as the need for liquidity versus the need for reduced volatility. This information has a significant impact on the tax liabilities generated by the placement of indexes in different accounts. Rebalancing is required each time assets are added or subtracted from the overall portfolio.

    A good rule of thumb is to test a portfolio quarterly and rebalance when necessary, generally on an annual basis. In addition, an investor’s Risk Capacity? should be measured once a year or upon any significant event in their lives, such a loss of a job, purchase of a home, marriage or divorce.

    I hope that was helpful, Mark

  117. Mark,

    Thanks for the in-depth response and helpful quick-links. The quick-link to the Sample Reports was great, and showed me just what I needed to see.

  118. Skip1047,

    Glad it was helpful.

    Did you note the benchmarks in the Performance tab? We are the only firm I know of that actually tracks clients performance relative to the index portfolios we show online. This is report is very expensive to maintain, but if you are not carefully measuring and comparing, how do you know if you are capturing the returns you have the capacity to earn? Many investors hire an advisor, but have no way to properly benchmark their returns, so who knows if they got a bargain on fees or not? Comparing to the S&P500 is not near enough, as you can see from the reports online.

    “Structure” seems to know alot about the advisory business and offers some very sound advice throughout this discussion. In particular this comment should be repeated, “The costs associated with operating a Registered Investment Advisor firm are substantial IF the firm hires and retains quality employees, carries the proper errors and omissions insurance, maintains an effective compliance program, and provides robust reporting capability.”

    These are all subtantial costs that I can confirm, since I pay the bills. Software upgrades and transistions to new and improved packages and the consultants and personnel to implement and train employees are a huge cost that few advisors recognize until they have to upgrade. The SEC requires offsite storage of important documents, so advisors either copy and store offsight or digitize the records. This is a huge project that few low cost advisors have tackled. Just ask them. Also, the advisor is responsible for trade error costs. The trade error department at Schwab is very busy, so I can assure you it happens and advisory firms can find themselves in trouble if they do not have the capital to cover the error.

    Since this discussion debates the questionable value of low cost advisors, you may be interested in a special web page I created to highlight the high cost of low cost advisors and a few examples where the cheap advisor failed the client. Click here to go to http://www.cheapadvisor.com.

    May the Market Forces Be With You,, Mark

  119. Mark,

    I did not notice the performance tabs on the first look. The more I poked around in there, the more impressed I was with the reports section.

    ? May I be presumptuous and suggest that you might want to consider using a more modest example; your average new investor’s initial investment. $100,000 to $200,000 would seem to be more in the range to which most potential new investors could relate.

    ? In my many hours on the IFA site in the last month or so, I never ran across the Sample Joe reports link or page. (UPDATE-I JUST SEARCHED AND FOUND IT UNDER DEFINITIONS)?. ?IFA then designs highly tax-managed and low cost trading strategies, maintains ongoing proper risk exposures through rebalancing, manages cash inflows and outflows, and provides monthly and inception to date detailed measurements of client performance relative to the IFA Indexes and other traditional benchmarks. ?..?

    ? Boy, ?It is all in there?! Bring these great features out into the open! I would think that they would be most POWERFUL tools to attract new clients.

    ? I find the discussions of the process of managing the account AFTER it is set up to be sorely lacking on most sites. The most glaring omissions (sometimes I think intentional) include the reporting (frequency and content), rebalancing, cash management and tax management.

    ? My gut feeling is that if you were to consolidate these features, on which you are SO strong compared to the others in one (1) easily accessible spot on the Site, it would even further boost your competitive advantage. Why not scratch the ?Advisor Cam? (I have not spotted one of the illusive little buggers yet!) and put it to the right of ?Open Account?? Perhaps the section could be called, ?After you Invest? “What to expect AFTER you invest with IFA”, “After you invest with IFA”, or some such.

    Without stating that you provide better after the sale service than your competitors do, it would be immediately evident to anyone who has visited many sites doing their ?Due Diligence?

    I hope that I am not showing any ignorance of the features of the site; they are just so extensive that one would almost have to miss something!

    Thanks again for all you sage advice and specific help!


  120. Skip, thanks for your useful comments. I will look into your suggestions. Mark

  121. First off, I want to thank everyone for all the knowledgeable advice and information provided in this blog. It has truly been a great learning experience. I learned more here in one night than I did in weeks of researching DFA over the internet.

    Has anybody actually had first hand experience with Asset Builder? If so, how does Asset Builder compare with IFA and Talis? I am a young investor with between $50,000 to $100,000 to invest immediately. Asset Builder seems to be a great deal, but how does the efficiency of there portfolios compare to the portfolios of some of the higher cost advisors (IFA & Talis)? It seems to me that any significant loss of efficiency may not be worth the reduced fee schedule. Also should I be worried that Asset Builder only rebalances annually or is that typically often enough?

    Thank you all in advance for any feedback you can provide. As I said before I really appreciate all the informative posts on this blog.



  122. Derek Tinnin says

    To all,

    Great comments guys! I am a DFA advisor and recently created a new firm to use some of the latest technology and try to drive fees a little lower. I’m at .25% with a minimum fee for full service portfolio management, but I am looking for ways to get the fee down a little lower. I may consider a reduced minimum if the interest level is high enough by clients just looking for a more streamlined set of services.

    I have the ability to give you daily access to my portfolio accounting system so you can monitor performance, etc. on your schedule…If that’s of any interest to you.

    If you have a few minutes, please take a look at my website at http://www.purposewealthmanagement.com and let me know your thoughts.



  123. Hello All,

    I have noticed lately this site is becoming a marketing tool for DFA sites and advisor fees. DFA is not the only game in town, although I support the DFA strategy and their funds. What interests me as an investor in general and a DFA invester is how DFA is performing against the likes of Vangard and the rest, and also Fees.
    In reference to fees I agree with them. I payfor expert advise and the best performing and efficient portfolio over the long term.
    One of the components of this equation is advisor fees and portfolio costs. In terms of DFA advisors and the rest, the main difference I see with DFA is that the portfolios are a selection of all DFA funds which require less management. Versus advisors who use multiple brand name funds which requires more fund management. Therefore I strongly believe that DFA portfolios generate less risk and require less management time and should have lower advisor fees. Once you have agreed on the DFA portfolio there is not much advisory management after the portfolio development other than the yearly review. I agree on a fee but I think the DFA advisory fees are to high based on what I am receiving for that fee. The real product here are the DFA funds developed by the DFA “Fathers” and administered by the DFA advisors. If you are investing for a retirement fund over 40 years, the advisory fee over 40 years can be a major bite in your portfolio dollars. Why not keep it as low as possible!!
    I would here your thoughts on keeping portfolio expenses to a minimum.

  124. Derek Tinnin says


    Sorry to sound so much like a salesman on my first post. Yes, I am doing a little marketing here :), I am, after all, starting a new firm and I need to get the word out…I will keep my comments on topic going forward.

    As for advisor fees, I agree that fees for the services currently offered by most advisors (DFA or not) need to come way down. Flat fees not tied to account values will probably ultimately prevail.

    In the active management world, I understand why fees are so high. Active management is expensive and advisors in that world believe that clients should pay up for their “expertise and skill.” We all know that is just a mirage and advisors in the passive world should, at least in theory, have a competitive advantage.

    Passive advisors aren’t helping the cause much, however, by keeping their advisory fees at levels similar to their active counterparts and replacing the time spent on economic forecasts and security analysis with time spent on other unnecessary activities.

    A lot of advisors charge too much because their cost of doing business is still too high. For the most part, they are anchored to expensive legacy software and high payroll costs for employees focused on expensive manual processes. Clients who pay for that “hard work” are actually paying for inefficiency.

    As an example, there is a comment from an advisor (whom I really admire, by the way) in an earlier post on this blog that has a negative view of low cost advisors because he has the impression that low cost advisors aren’t doing all the things he is doing that require a lot of time and hard work. While that may in fact be true of a lot of low cost advisors, I believe low cost and bad service or advice do not have to be joined at the hip. I’m a big believer in cost and performance being inversely related, whether it’s the cost of a fund OR an advisor.

    That same advisor also stated that rebalancing a portfolio is a “very complicated” process that requires a “highly sophisticated” spreadsheet. I agree that it can be complicated process in need of a sophisticated solution, but I really hope that he isn’t still using a spreadsheet to tackle that part of his business. At a previous firm, I was responsible for the portfolio management, rebalancing, reporting, etc. for around 400 to 500 clients with approx. $800 million under management, so I can relate to what it takes to run that type of business. I may be wrong on this, but I would suspect that if that advisor is really using spreadsheets, he is also employing a lot of people to manually deal with the data management and portfolio management requirements and I doubt that they can review client portfolios very frequently. Judging by the company photo on his website, he has quite a large payroll.

    At my old firm, we just had me for portfolio related activities…and some really nice software. And I could review every portfolio every day if necessary. We just felt that when it comes to rebalancing, you have to do it when it makes sense, not just because it’s December 31st…I estimated the software I used took the place of at least a dozen employees. It’s just a matter of time before that type of technology is present in most firms and it will be interesting to see if fees and payrolls come down.

    In any event, the business of advice is definitely changing. The beneficiary will be the client as fees come down and service/performance improves. Advisors don’t have to suffer, they just need to focus on what matters.

  125. Fabian and others,

    Your question is a very fair challenge to all advisors. To answer your question and hopefully shed some light on the topic, I will lead off by saying that the real advisory product here is two-fold: 1) risk-adjusted portfolio return net of fund expenses, advisory fee, and tax obligations (short and/or long); and 2) the peace, comfort and emotional well-being that comes from knowing that your advisor has you on a proven path, the right path. A good advisor knows how markets work and that markets do not behave perversely, people do. Armed with this knowledge and the tools to make a difference, the advisor is positioned to save investors from doing the wrong thing at the wrong time. Reactionary decisions driven by emotions such as fear and greed can be devastating to even the best laid investment plans. As Warren Buffet says? ?The stock market is nothing more than a system by which the impatient transfer wealth to the patient.?

    DFA structured asset class funds are an input (portfolio building block) rather than a product here. Another input is of course the advisor which is where investment philosophy, investment planning, construction methodology and the like come into play. DFA advisory firms differ, sometimes dramatically (up to 5%), in the long term portfolio performance results delivered to clients. DFA portfolios are not created equally. It is of paramount importance to look at all aspects as portfolio quality is defined by not only cost, but more so by the impacts of risk and return. As a client, you are compensating the advisor to design, construct and manage a portfolio
    best positioned to meet your personal investment objectives in the most ?efficient? manner possible and according to your individual risk capacity. Being a successful amateur investor for nearly 20 years before I turned professional, I can say with the utmost certainty that what you do ?not? know will inevitably hurt you. This is why the DFA advisor who simply “sells” access to DFA funds does an injustice to not only the client, but also the investment and economic precepts DFA was founded on ? Modern Portfolio Theory and other component theories.

    The cost of not utilizing the most risk-efficient and tax-efficient portfolio can take a much larger bite out of expected return than fees ever could, especially compounded year-over-year. The popular misconception on this site and elsewhere seems to be that DFA funds are straight index funds. This is not true. The only true index fund is the DFA Large Co portfolio which is simply the S&P 500. More accurately stated, DFA takes an indexing approach which is complemented in many cases by additional quality screens and sophisticated trading techniques. As you might expect, this allows DFA a consistent advantage over the associated benchmark index for respective asset classes.

    Vanguard is a wonderful company founded on investment precepts truly before it’s time. It was 1976 when John (Jack) Bogle’s Vanguard released its first index fund – the Vanguard 500 Index fund which tracks the S&P 500 Index. It was not until 1990 where professors Harry Markowitz, William Sharpe, and Merton Miller won the Nobel Prize in Economics for their work in developing Modern Portfolio Theory (MPT). I connect the two simply to illustrate that Vanguard has and continues to offer very capable building blocks for a portfolio constructed and philosophically aligned with MPT. However, it is possible to create a well diversified DFA portfolio with a much higher return and lower risk due to the inherent advantages of DFA funds.

    On three separate occasions, I have personally compared our Talis all equity DFA portfolio to similar Vanguard portfolios. The comparison was performed at the fund level per asset class
    and also at the portfolio level for the longest timeframe available. DFA not only posted a consistent performance advantage by the asset class, but more impressively, at the portfolio level DFA portfolio returns were 4.8% higher than what the Vanguard portfolios achieved. The DFA portfolio also achieved its return with less risk. Part of the difference I have already
    explained, but equally important is that DFA simply has more asset class coverage than Vanguard, and these additional asset classes have a high expected return. In this way, DFA can provide a diversification advantage over Vanguard while increasing expected return for less mathematical risk. It should also be mentioned that the DFA portfolio referenced here is an optimized model meaning it was designed for the highest return at that particular risk level.

    This performance differential creates a win-win for both the client and advisor. The advisor is rewarded with a modest fee, and the client is rewarded with not only outstanding performance results, but also the peace and comfort of being in a proven investment model.

    As an Independent investment advisor, it is important to note our advice is not tied to a particular fund company. Although we build most investment portfolios from DFA funds, we also
    recognize the need to use a mixture of DFA funds with other funds for certain clients and conditions.

    For many more reasons than what I have outlined above, I am a passionate believer in the Vanguard and DFA investment approach. While I understand this approach may not be for everyone, I would love to hear from those of you who would like to discuss anything further.

    You are welcome to contact me at gschmitz@talisadvisors.com or 972.378.1792 for further discussion and/or for the DFA vs Vanguard portfolio performance comparisons. I also have other portfolio comparisons available and can generate an analysis of your current portfolio if you like.

    Kind regards,

  126. Derek, you hit my point on head with your response explaining the difference between Active advisors and Passive advisors. Don’t get me wrong I believe there should be fees for the service. This is not something I would trust to myself to do. I think the days of paying for development of the portfolio (some advisors have a one time charge) are gone. And fees for DFA passive fund management fees should be coming down. Thanks

  127. Derek Tinnin says

    Thanks Fabian…

    To address Greg’s comments, I agree with you at least on one point. Building a portfolio that is a good fit with an investor’s unique circumstance is good thing to focus on.

    Most clients I have worked with originally came to me with portfolios that had no logical structure and that exposed them to all kinds of uncompensated risks. Their portfolios were targeting everything EXCEPT risk and they really didn’t have a good handle on how much risk they were taking and why it even mattered.

    Risk is really the only thing THAT matters, however, and the only thing we have some semblance of control over (other than costs). The primary reason we build portfolios with 100% passive funds is that risk can not be effectively and efficiently targeted any other way. Active managers simply can’t be used because they have holdings that vary more randomly across risk dimensions, making portfolio structure difficult to maintain. A structured portfolio of passive holdings gives us the best shot at building “precise” portfolios.

    With that said, the main reason you find big differentials in “advisor” performance is because advisors target different levels of risk, some knowingly and some not. You can’t really compare advisor performance unless you regress their portfolios against the 3 factor model. The main point is that advisors don’t produce returns, risk factors do. Advisors can only hurt performance. They can’t improve upon returns that are there for the taking. They can only attempt to capture those returns as efficiently as possible. I think I am restating a lot of what “Structure” said a while back, but it doesn’t hurt to repeat it:)

    Last point. There is no perfect portfolio. I can find 1000 ways to target a certain level of risk, and I’m sure other DFA advisors can find another 1000 ways. I will keep trying to find that perfect portfolio, but like golf, all I can do is keep trying..I’m just glad I’m not stuck in that “style box” mentality that influences so many investors and advisors. DFA helped me escape that prison.

    I see a few comments on this blog from investors looking for advisors who can “produce” performance and from advisors promoting (or at least implying) that they should be hired on their “ability” to produce better returns.

  128. Derek Tinnin says

    strike that last paragraph please

  129. Is structure still around? If so please email me at timmerjames@yahoo.com. Thanks.

  130. Database crashed. All comments within the last week or so were lost. My apologies, if I have (a lot of) free time I will try to restore them manually, but it is unlikely given the volume of comments received.

  131. Derek Tinnin says

    Anyone know why several posts are missing?

  132. Derek,

    You had a posting that I responded to that was lost. In your posting you showed a portfolio you developed with all DFA funds including the two DFA income/bond funds (DFGEX/DFGBX). My question was why would you use DFA income funds when there are much better performing income funds to choose from. Correct me if I am wrong but don’t the DFA funds come in at end of the performance list of comparible income funds.

  133. Derek Tinnin says


    If I recall, your original question was in the context of an investor in retirement looking to maximize return from the bond portion of their portfolio, under the theory that bond income is an important part of producing stable retirement cash flow. If that’s the case, let me first clarify the question about the DFA bond funds, and then share thoughts about retirement income.

    When comparing DFA’s bond funds to other bond funds, you need to make sure you are comparing apples to apples. The DFA funds are global, currency-hedged, short-term, and high quality. If you compare them to bond funds without those characteristics, such as a standard domestic bond fund, you may get misleading results. Rather than go into great detail here, a good (but somewhat technical) read is the following piece by Eugene Fama:


    When it comes to bonds, two schools of thought typically emerge:

    1. Use bonds to produce income and total return
    2. Use bonds to manage portfolio volatility

    DFA follows approach #2.

    Now let’s tackle your main concern with a piece I posted on another site that gets to the heart of the matter. It paraphrases a lot of what you might here Gene Fama Jr say and I think it makes an important point about what retirees should really be concerned about (and it isn’t high levels of bond income…). Pay particular attention to the concept of eliminating inefficient risk exposure. Here it is:

    Retirees often structure their investments to maximize current income and minimize exposure to potential loss. They feel their biggest risk is in covering current cash flow needs and they just can’t “afford” to lose principal caused by market fluctuations. It is understandable, then, that they find a portfolio comprised of fixed income investments (bonds, bank cds or even annuities) attractive. The apparent safety and steady cash flow delivered by these holdings lets them clearly see where their next “paycheck” is coming from.

    The retiree’s biggest liability, however, is not in providing income for current consumption. It is his or her future consumption – which is highly sensitive to inflation. Fixed income investments provide a known source of cash flow, but they are a terrible way to cover the risk of inflation – especially when using longer-term/higher-yielding bonds. Assuming an inflation rate of 4%, a 60 year old retiree today with a cash flow requirement of $50,000 per year will need $100,000 per year by age 78 and $150,000 per year by age 87 just to maintain their purchasing power. The unintended consequence of pursuing near-term safety and steady cash flow is a devastating long-term loss caused by inflation.

    The conclusion is that financial security is driven by total wealth, not current income. It is imperative for retirees to structure their portfolios to include multiple asset classes to stay ahead of inflation. But what about income for the here and now?

    Money is money. Whether it comes from an interest payment, a dividend or from capital growth doesn’t really matter. There’s no reason to prefer one source of money above the other. In the context of a broadly diversified portfolio, producing cash flow is not a problem. When cash is needed, simply redeem assets from wherever it makes sense. This approach has the added benefit of managing the impact of taxes and other costs more effectively.

    So what is the best way to structure a portfolio to cover both current income needs and long-term inflation protection? Financial theory teaches us that for two portfolios with equivalent average returns, the portfolio with lower volatility will produce greater terminal wealth. Greater terminal wealth means more assets to produce cash flow. The goal then is to maximize return for a given level of volatility. Maximizing return relative to volatility is done first by eliminating unnecessary or uncompensated risks (in other words, pursue maximum diversification – diversifiable risk is uncompensated risk) and secondarily by eliminating inefficient risk exposure.

    What do I mean by “inefficient” risk exposure? In a portfolio of stocks and bonds, inefficient risk is usually found on the bond side of the portfolio. Typical bond holdings vary by maturity (short, intermediate, long) or credit quality (high quality or high yield). Bonds other than short-term, high quality bonds usually do not produce enough additional return to justify the additional risk they add to a portfolio. When it comes to taking risk, take it with stocks where you have higher expected returns per unit of risk. Use lower-risk/lower-yielding short-term bonds to manage the volatility of the stocks. Don’t worry about the reduced levels of bond income. Again, money is money and the source of cash flow is the portfolio itself – not just certain parts of the portfolio.

    It’s important to conclude by saying that risk is a personal preference based upon your need, ability and willingness to accept risk. Because retirees rely on their investments more, they should stay focused on strong tradeoffs between risk and return and avoid the extremes of portfolio structure. Stocks are “risky” in the short run (negatively affecting cash flow) and bonds are “risky” in the long run (negatively affecting cash flow). Combining short-term risk with long-term risk ultimately maximizes sustainable retirement income.

    Hope this helps.

  134. Derek Tinnin says


    One more thing. To refresh everyone’s memory, I showed the following “starting point” portfolio which inlcudes all DFA funds. The purpose of the bond positions is to primarily manage volatility. Using global, short-term bond funds sush as the one’s offered by DFA helps me remove units of risk from the bond side and add units of risk to the equity side, where risk is compensated more effectively, a little better than I could if I used standard US intermediate bond funds. Here’s the portfolio:

    Bond Funds
    DFGFX – 2 yr global
    DFGBX – 5 yr global
    DIPSX – Inflation Protected

    Equity funds
    DFEOX – US Core
    DFIEX – Developed Markets Core
    DFCEX – Emerging Markets Core
    DFREX – US Real Estate
    DFITX – International Real Estate

    I can either leave this portfolio as is, or add other component positions to change portfolio market/size/price risk characteristics. I can also consider different bond positions, including those offered by other companies (but usually Vanguard…). It all depends on the situation.

  135. Greg thanks for your detail response on 1/2/08. It was very informative. I agree with you that there two parts as you explained. I still think the DFA product is the unique and differentiating piece.
    The advisor becomes the common piece, I would expect all advisors to provide the piece and comfort of the best performing, cost effective, risk managed long term portfolio. Some are better than others. But that is what we are paying for.

  136. Derek,

    Thanks for the very informative response. I was afraid I might not be comparing apples to apples in reference to DFA bond funds. Could you list some bond funds that you would call comparible to DFA bonds. I understand bonds are used to protect a retirement portfolio and provide stable income. For me to fully understand the differences that you and the DFA founding fathers present I would like to compare a DFA fund to another similar bond fund.

  137. Derek Tinnin says


    It’s hard to find a good match to what DFA does on the bond side. This isn’t a statement of DFA being a superior bond performer. It’s just a statement about the actual fund construction and that what DFA does is somewhat unique. It’s kind of like comparing TAREX (a real estate fund) to the real estate category. It’s just an odd duck. DFA is kind of the same way. If anyone else out there knows of a good match to compare to DFA, I too would like to know.

    One side comment (rant) before I continue. “Comparing” fund performance is typically done in the active management world to try to find skilled managers. What DFA or Vanguard does is track indexes or risk characteristics efficiently, so “comparing” them to a universe of bond funds dominated by active managers won’t answer the main question you have. You either believe in active management or you don’t. If you don’t, stick with DFA and/or Vanguard and be confident you will win the long-term battle. There is, after all, evidence to support long-term passive investing regardless of what short-term performance lists show.

    What I typically recommend for non-DFA portfolios is to stick with the basics and go with a short-term option like Vanguard Short Term Bond Index (VBISX or BSV), and consider mixing in a TIP bond fund (such as TIP, VIPSX). TIPs do, however, have unique risk/return characteristics and aren’t very tax-efficient so make sure you understand how to use them. To add more yield (and risk), Vanguard Intermediate (BIV, VBMFX) may be an option, and Vanguard has a good selection of tax-exempt funds if you are dealing with a taxable account.

    But again, I think you are better off sticking with short-term and high quality. Yes, you sacrifice a little yield, but you get better inflation protection and lower volatility, which positions you to take a little more risk on the equity side of your portfolio. The quest for yield just isn’t worth it over time. Unless you are making an interest rate or economic cycle bet, and you probably shouldn’t try, I would stay far away from long term and/or high yield (junk) bonds.

    Other bond funds that seem to be core holdings in a lot of portfolios are funds from PIMCO or Loomis Sayles. These funds tend to show up at the top of the long-term performance (and marketing) lists. This has more to do with the risks they take than with the skill of Bill Gross or Dan Fuss. If your goal is maximum return from your bond funds, I suppose you could do worse than starting with PIMCO or Loomis Sayles. Just understand that you will add active management risk (with random “expected” results). They have plenty of options to build a global bond market exposure (currency hedged or unhedged).

    Ultimately, I firmly believe the low-cost option among bond funds will
    win the performance battle.

    By the way, DFA just introduced a new bond fund (no ticker yet) called “Selectively Hedged Global Fixed Income Portfolio.” This is basically a quasi-unhedged version of their other global bond funds. I suppose the demand from investors looking to play the weak dollar or other currency games had something to do with introducing that fund…

    Not sure if this helps??

    It may be interesting to hear from advisors who go the individual bond route. I chose not to go that way based on lessons learned as a municipal bond manager for an insurance company a few years back. Size matters when trading bonds, something most individuals and advisors don’t have. But it would still be good to hear that point of view.

  138. Derek Tinnin says

    This is a great piece by Larry Swedroe about why investors should look at an asset class as part of the whole portfolio instead of on a stand alone basis. Very relevant to the bond fund discussions:


  139. Anyone know of a good flat fee investment adviser who knows both DFA and TIAA-CREF retirement funds?

    Wandering thru this and other places talking about DFA advisers, I saw one firm in NYC that “did” both, but didn’t write down who they were, and can’t find them again. The web page showing their staff included not just the registered investment advisers but also the office manager and other support people.

  140. Derek Tinnin says


    I’m Cincinnati-based, but I know quite a few advisors around the country. Are you thinking of Buckingham Asset Management, or maybe Altfest? They are both NYC-based firms that might be a good place to start.

  141. Greg — very good point about the advantages of using DFA’s structured asset class approach over indexing in portfolio construction. Like you, I’m completely amazed by the inappropriate focus on fees by a lot of the participants here. There may be a difference of 20-50bps between the least expensive and the most expensive advisors (ignoring the tails on the curve — I’ve seen a few that charge 2% and that’s ridiculous). There are many other factors that have a greater impact on results, most notably the exposure to risk factors in the portfolio design.

    Fabian — you have it completely backward. The advisor’s unique suite of services, fee structure, and portfolio construction is the differentiator. DFA provides a great set of tools.

    Derek — great explanation on the correct role of fixed income in an efficient portfolio. DFA’s bond funds are completely misunderstood by most investors. Also, the selectively hedged DFA global bond fund is more than a currency play. By hedging back into dollars using forward contracts, DFA can essentially convert the base rate of the yield curve in developed international markets to the US base rate while maintaining the yield curve of the foreign markets. But, hedging everything back into dollars sacrifices the spread between yields on the short end of the curve. Leaving normal yield curves with a positive spread on the short end unhedged provides additional return. Long-term simulations show some pretty impressive efficiency with this strategy. What I haven’t seen is how the correlations to equities compare with the typical DFA global fixed income funds.

    Gloria — there isn’t anything special about TIAA-CREF retirement funds and any competent DFA advisor should be able to help you with both. I’m assuming that you’re stuck with TIAA-CREF in an employer sponsored plan. If not, DFA or Vanguard is a much better choice for a retirement portfolio.

  142. Derek Tinnin says


    I’ve been researching the selectively hedged fund and thinking about how to incorporate it into my portfolios. My first inclination is to use it as a complement to the 2 yr and 5 yr global instead of as a replacement (for either), but I won’t make a final decision without understanding the expected correlations and volatility characteristics. If you get any more info on this, I’d love to see it or at least hear your thoughts.


  143. I am in process of changing from a DFA percentage fee advisor to a DFA fixed fee advisor for reasons related as much to competence as the fee amount. Two of the fixed fee advisors I am considering are John Gorlow of Cardiff Park Advisors and Steven Evanson of Evanson Asset Management. They have both offered to provide services for my investments (which exceed $2 Million, 65% of which is in a taxable account) for the same fee. Can anyone provide me with feedback concerning their competence, knowledge, expertise, ease of working with the, etc.? If you have one of them as your advisor, how happy are you with their services? Do you feel you are getting your money’s worth?

    In your experience, how do the services of a fixed fee advisor like these two gentlemen compare with a percentage fee advisor—have you noticed any significant difference in the quality or quantity of services for your DFA investments? Thanks for your feedback.

  144. Derek — The big question is correlation. Volatility will certainly be greater than the fully hedged global fixed strategy, but not as great as an unhedged strategy. I think we’ll see that the volatility of the selectively hedged strategy is about 2/3 of that and about double that of the hedged strategy. If you look at rolling 36 month correlations between US stocks (Russell 3000) and developed international (Citi Non-$ World Gov’t unhedged) bonds, it tends to vary between about -0.2 and +0.2 over the past 10 years, so even an unhedged strategy looks pretty good. Like you, I’m interested to see how the selectively hedged strategy performs.

    Mark — The difference in net return from one advisor to another based on portfolio design is often greater than the difference in fees, particularly when you consider after-tax performance of your taxable account. In fact, the random timing of rebalancing or investment of additional funds can make more difference in net return than the advisory fees. I would suggest that you choose an advisor based on the factors that you listed (competence, etc) and not based on fee structure, within reason. A big factor will be embedded capital gains in your taxable account. It might not make sense to change it. But, if that’s not a factor, a tax hybrid portfolio design makes a lot of sense for you — keeping the least tax efficient asset classes in the tax deferred account and maximizing tax efficiency in the taxable portion using tax managed and tax advantaged core components where possible.

  145. Structure, thanks for your feedback. In fact, with the recent drop in the market, my situation is ideal for changing both investment advisors and DFA investment approach. With either of the two investment advisors I am considering, I can continue investing in DFA funds and reduce my portfolio expense 60-70 basis points. Further, I am looking to hire an advisor who is more knowledgeable about DFA funds, especially their more recent tax advantaged core funds, which it appears my current advisor was not aware of (or at least to date has not mentioned to me despite the drop in the market and opportunity that presents).

    I would appreciate feedback from anyone else who has experience working with or is familiar with either John Gorlow of Cardiff Park Advisors or Steven Evanson of Evanson Asset Management.

  146. Derek Tinnin says


    For the tax-advantaged Core funds, be sure to consider the soon-to-be-released DFA Tax-Advantaged World X US fund. This fund will be about an 85/15 mix of developed international and emerging markets and it may make more sense than the normal combination of DFA International Core Equity with DFA Emerging Markets Core or other Emerging Markets component funds. You will most likely still need a separate emerging markets fund, but just less of it, further reducing your hidden costs.

    Here’s what I typically recommend as the basic structure for an all taxable account (assuming you are in a higher tax bracket):

    DFA TA US Core Equity 2 (DFTCX)
    DFA TA World X US (no ticker)
    DFA Emerging Markets Core Equity (DFCEX)
    Vanguard Short Term Tax Exempt (VWSTX)
    Vanguard Limited Term Tax Exempt (VMLTX)

    Very simple, very tax-efficient and low overall cost.

    If you have enough room in your IRA or tax-deferred accounts, you can use DFGFX, DFGBX, and/or the new Selectively Hedged fund for your bond exposure in lieu of Vanguard. You should also consider REITs and TIPs inside the IRA/Tax-deferred accounts.

    With that basic structure, you can add the traditional component funds for more size or BtM exposure. But again, you will save costs because you won’t have to add as much of those funds as you would have had to do when not using Core funds.

    I would help, but it sounds like you are set on a flat fee advisor. With $2 million or more, the flat fee probably makes sense (all other things being equal of course – which is a tough call). Less than that, it’s often a matter of semantics because the flat fee compared to a basis point fee (assuming a lower basis point structure) can be very simlar. I’m sure either one of those guys can get you where you need to go, though, as long as they are willing to build a customized portfolio for you and not offer something off the shelf.

    I seem to find myself reading Steve’s website a bit more than others. He essentially tells you a great deal about his approach, so there shouldn’t be too many surprises with him.

    Good Luck.

  147. Mark, it certainly seems as if a change is overdue. The fee structure that you mentioned is unreasonable based on your portfolio size and it sounds as if you are not receiving much value in terms of advice.

    The difference between a reasonable asset based fee and the flat retainer fee should be about half of what you have experienced. At that level, the fee should not be the deciding factor. Assuming it’s a difference of 30bps, you need to understand that the combination of portfolio design, rebalancing schedule, or tax efficiency can have a much larger effect on portfolio performance than the advisory fee.

    Mark Hebner has said it many times, and I think he’s right that, for the most part, you get what you pay for. That may not have been the case with your existing advisor, but I don’t think it makes sense to base the majority of your decision about your future on the lowest fee.

  148. I do not understand why but I have not been geeting e-mail notifications of new comments on this blog.

    Structure: I was referencing my comment on only DFA advisors rather than all advisors. Although I do agree with you that the advisors services are very important. I expect that because of the requirements that DFA places on advisors to get accepted as a DFA Advisor. I think the DFA fund development strategy creates another level of excellence in building market comparible funds with lesser risk and better performance in all the key categories. Just my thoughts.

  149. I am planning to roll over to an IRA but concerned about the state of the current stock market. I have seen all the stories about the impact the 2001 market had on new investors that got in just before the market went north. Based on current business news the market could continue to slide and the R word (resession) has been mentioned often. Should I wait until I start hearing and seeing positive markets signs or take advantage of the lower fund prices now.

  150. Derek Tinnin says


    Diversification is the antidote to your concerns. Get fully invested in a globally-diversified portfolio, structured according to your long-term need, ability and willingness to take risk, and then have confidence that the portfolio structure will “do its thing.”

    You can certainly wait till the “coast is clear,” but some of the biggest gains have an uncanny ability to come about when you are not in the market. You have to choose if you would rather be in a market that’s going down or out of a market that’s going up. Which is more painful?

    It’s tough to expect capital market rates of return without being willing to expose yourself to consistent capital market risk. Don’t try to time things, it’s an exercise in futility.

    A compromise is to average in over time, but that’s kind of like gradually wading into a cold pool of water. You usually put yourself through a lot more agony that way than when you just jump right in…

    Diversify properly and you will be just fine.

  151. Mark,

    I came to the same conclusion with those two folks and one other (Rick Ferri). It’s funny because I asked this question on Diehards, and then three other people wrote me having come to the same conclusion. E-mail me, and I’ll tell you why I’ve ruled it down to one of these three in particular (Gorlow/Evanson/Ferri) and another advisor named Russell Wild. himills@yahoo.com .

    Cheers, Mills

  152. I have to say that I just looked at Derek’s site, and his fees seem very reasonable. He’s given some sound advice, and I may contact him myself.

  153. Mark: The following is a quote from Morningstar Indexes Year book 2005, from the link in your 9/30/07 posting. I don’t mean to regress here but you could explain what this risk means to Index funds and DFA. Also are there 2006, 07 updates to this subject from Morningstar.

    “The bottom line is this; the index community is at a crossroads.
    It’s wandered so far from its roots of offering one-stop,
    broad-based exposure to the market that a return to that
    simpler approach may not be possible. In creating
    more complex offerings, the index community has found new
    revenue sources from hedge funds and other parties
    seeking very specialized tools, but it has done so at the risk of
    doing considerable harm to less sophisticated investors.
    The test of character facing the index community is whether it
    ignores that risk or steps up and tries to mitigate it”.

  154. Attempting to time your entry into the market is a terrible idea. If you’re still thinking this way, you either haven’t completely understood or fully embraced the concepts of passive management and/or efficient markets. Jane Bryant Quinn, who is one of the very few responsible financial journalists, made a great point about this in her most recent column in Newsweek, where she stated that there was a word to describe investors that move into and out of the market at just the right time. The word is “liars”. The same is true of “advisors” who claim to be able to do so.

    Fabian, my comments were specifically regarding DFA advisors. It is very easy to design a portfolio using DFA funds that takes a lot more risk than is necessary. Again, DFA’s funds are superb building blocks for portfolios because they provide very focused exposure to risk factors that research shows are the drivers of return. But, it is the portfolio construction that determines risk, return, and efficiency. That is entirely up to the advisor and the portfolios that are constructed/recommended by different advisors vary quite a bit.

    I continue to be amazed by the focus on fees that exists here. It is far from the most important factor in advisor selection, but it seems to be the subject of about 70% of the posts.

  155. I have not seen any activity in blog since 2/21. Is there a problem with the site.

  156. Derek Tinnin says


    I don’t think anything is wrong with the site. It appears to just be a lull in the activity.

    One thing I am curious about is your thoughts on what Structure had to say in his last post? My impression is that you feel that most DFA approved advisors follow a very similar approach and portfolio construction methodology. Structure was stressing the point that you can see substantial differences in recommended portfolios from one advisor to the next, and I agree with him on that. In fact, you will see tremendous differences in all aspects of how these advisors operate.

    Keep in mind that they are completely independent from DFA and are free to run their practices however they see fit. They are not required to use DFA or any other other fund company. The primary traits they share are that they are fee-only, independent from the wirehouse community and adhere to a passive or semi-passive investment philosophy (DFA of course wants them to be all passive, but many are not). Some will use DFA exclusively and some may use DFA for a just a small part of a recommended allocation. DFA is just one of many tools those advisors can use. Some will build model portfolios as “products” to sell and some will be a “custom builder.”

    I personally don’t like the term “DFA Advisor” because there is no such thing and it is misleading. DFA approved is the appropriate term.

    With all the differences in business practices, fee levels, services, etc. It can be a real cluster for people to navigate through. I can understand why the shortcut is to compare fees.

  157. Derek,

    I do not disagree with Structures comments on the importance of a highly qualified advisor with years of experience. I didn’t mean to imply all “DFA approved advisors” use a pre-configured DFA designed menu to chose from. But I do think some do. I think DFA provides advisors with portfolios to work from. Why not they know how they work together better than anyone. I just think DFA makes it easier for advisors to use their products.

  158. A few thoughts on the Selectively Hedged Portfolio from DFA — I don’t really think it makes sense to include it with the hedged 2YR or 5YR versions. Its a stand along product, and if you are using bonds to reduce portfolio volatility, and provide inflation sensitive returns in a low risk package, I think Selectively Hedged is the best route. (this is a change from my opinion in the past)

    Certainly you could combine it with a TIPS strategy (DFA or Vanguard) to control for expected and unexpected inflation, but thats probably all you need.

    Historically, even though currency risk adds volatility, it may not do so on a portfolio-wide level. Normally during US market downturns, unhedged bond portfolios perform better than hedged versions. Some currency exposure can actually reduce portfolio risk.

    Dimensional actually indicates this on their website: “Depending on an investor’s risk tolerance and asset allocation, introducing additional currency exposure may do little to alter the volatility of the overall portfolio”

  159. Also, I have never really seen much benefit to adding REITS to a portfolio. They have lower expected returns than a portfolio of small and value tilted equities, so you aren’t getting any return advantage, even after adjusting for the relatively low correlations.

    They do reduce equity risk, but so does short term fixed income. Also, they introduce tracking error to a portfolio. And, all things being equal, I’d rather introduce tracking error with smaller value stocks and some combo of short term bonds to control risk.

    We now have 30 years of data on REITS from Wilshire, and I found once you have a modestly strong tilt (say US Vector as your Core holding), adding REITS doesn’t improve efficiency any more than a much smaller amount in bonds (tax efficiency is of course reduced, however).

    Consider these allocations:

    80% US Vector
    20% Wilshire REIT

    has had the same volatility adjusted returns as:

    96% US Vector
    4% Lehman 1-3YR Treasury

    and 50% Vector
    50% Wilshire REIT

    has had the same volatility adjusted returns as:

    90% US Vector
    10% Lehman 1-3YR Treasury

    I just find that some combo of US, Int’l, and EM small and value tilted structured equity funds and short term bonds can be every bit as efficient — if not more so — than a portfolio that includes US and Int’l REITS.

  160. Derek Tinnin says


    The decision to exclude REITs is questionable. REITs tend to be small cap and have value risk factor characteristics, so they are often compared to small value funds (or in your example, to Vector). Although REITs share similarities with small cap value, they still have distinct risk/return characteristics making them a separate asset class. If you have a portfolio dominated by small cap and value (like the ones you mention above), then yes, at first glance, adding REITs may not seem to improve overall returns.

    But correlations still matter and REITs are significantly different that small cap value stocks. They have a much lower sensitivity to the market factor and the size factor than small cap or small cap value. They also have a different exposure to the value factor. The Fama/French model only explains about half of the variation of returns of REITs while the same model explains 99 percent of the returns of small cap value. That makes REITs unique.

    Your examples using Vector as the core do not represent a typical portfolio. Vector is a concentrated component fund and excludes a good portion of the investable universe. It is not a “core” strategy. It’s more of a pure play on a certain segment of the market. Mixing REITs and Vector to make a case for excluding REITs in general from a more broadly diversified portfolio seems to be a little bit of a stretch.

    I’m not going to hash out all the benefits of using REITs here, mainly because there is so much research already out there making the case. But more importantly, it follows economic logic to add non correlated asset classes with an expected return based on an earnings/dividend/interest model to a portfolio to achieve the diversification performance boost. REITs pass that test on all fronts. There’s a reason why guys like David Swenson and Roger Gibson have 20 percent or more of their allocations dedicated to real estate. I suggest reading their rationale before making your final decision. My only caveat is that I generally do not use REITs in an all-taxable portfolio.

    For the Selectively Hedged fund, I agree that adding TIPS is appropriate, but the decisoin to exclude fully hedged global funds or say a US short term treasury bond fund and just use the single selectively hedged fund comes down to a risk preference decision. The Selectively Hedged fund is has a 2 yr target maturity, which means it cannot benefit as much from DFA’s variable maturity strategy when compared to the 5 year global. That’s a reason to keep the 5 year. As for the 2 year global, it comes down to a preference of how much volatility you want from that part of your portfolio. Some people will always want a very short term, very low volatilty holding and for that goal, the selectively hedged fund may not fit. And just because DFA introduced a selectively hedged option doesn’t mean they intend it to be a replacement for the fully hedged options. The logic behind a fully hedged approach still stands and going selectively hedged, no matter how you look at it, adds a different dimension of risk. Going all or nothing is not always going to be the right answer.

    Just my 2 cents.

  161. Hey Derek!

    I am not saying I completely disagree with your comments so much as there is, I think, more than one way of looking at it.

    As for the Selectively Hedged Bond strategy, you are exactly right. There are some clear cut drawbacks (short maximum maturity and volatility that may or may not be rewarded). I just question how much benefit it would really provide if coupled with a hedged short term portfolio, or, even more extreme, both the two-year and five-year portfolios along with TIPS.

    In my mind, its either: 2YR + 5YR +TIPS, 5YR + TIPS, 5YR alone, or Selectively Hedged + TIPS. Each is a bit different. I myself believe that the last is likely to be the most efficient on a stand alone basis and within the context of a portfolio, but there is certainly room for other choices.

    As for the REITS, I hear what you are saying. I know even Dimensional looks at the US Vector fund as a broadly diversified component portfolio (taking the place of Large Value, Small, and Small Value in some cases). However, in reality, it holds approximately the same # of stocks as the Core 2 portfolio (actually, at last glance, Vector held about 3400 stocks, whereas Core 2 held about 3500. The only difference being a handful of really large growth stocks that I don’t think anyone will miss! 🙂 Of course the stocks are weighted differently, and hence the greater small and value exposure of Vector.

    Anyway, back to the portfolios. Starting with Core 2 (or Int’l Core), and adding a REIT portfolio does increase diversification, and potentially increase returns and decrease risk. However, it also increases portfolio tracking error. Furthermore, you can also increase your portfolio’s diversification by enhancing your weighted exposure to priced small cap and value risks.

    If we assume a simple portfolio that is 80% Core 2, and 20% Wilshire REIT, we have a particular risk/return profile. Some of the REIT returns are unexplained by the 3 Factor or 5 Factor model…but that portfolio does have a 3 Factor profile (0.99 beta, 0.27 size, and 0.33 value). A more traditional way of achieving a similar factor target, and risk/return profile would simply to use 85% Vector, 15% 1-3 Year Treasuries. Both portfolios have had similar risk/return profiles over the last 30 years, and the later’s 3 Factor profile looks pretty similar (0.93 beta, 0.37 size, and 0.35 value).

    For some, there maybe added comfort in the fact that allocation #2 is fully explained by the FF 5 Factor model, whereas allocation #1 has a modest allocation to an asset class with as of yet unpriced risk/return behavior.

    All in all, if the diversification and risk/return profile is unchanged, I don’t know if its worth it to add extra holdings for the sake of diversification by holding. That, in essesence is the beauty of the Core strategies — broad based multifactor exposure with minimal moving pieces. Much like Mid Cap Blend Indexes and Large Value Indexes are becoming more and more obsolete in the face of a Core allocation, I might argue, in the face of a modestly tilted balanced stock/bond allocation, REITS may suffer the same fate.

    I am of course aware of all that Keim and others have done on REITS. Its just not as compelling to me, and just wanted to bring it up for friendly discussion.


  162. Structure,

    You said “I continue to be amazed by the focus on fees that continues to exist here. It is far from the most important factor in advisor selection, but it seems to be the subject of about 70% of the posts.”

    The reason that I focus on the fees is because I don’t have any way to verify that a “high-cost” advisor who bases his fees on the size of my asset value significantly outperforms a low-cost set fee advisor.

    How do I know before I choose an advisor if the difference in his higher fees will result in better performance? I haven’t seen any comparison of advisor performance. And what would that be based on anyway since every individual’s portfolio is designed to meet a different set of needs and therefore assumes different risk factors, etc?


  163. Sorry folks. No more e-mails please on the Gorlow/Ferri/Evanson issue. I do wish you all the best, and we are all in the same boat (prospective clients), but I have to stop fielding e-mails and phone calls. Perhaps it was wrong to post my e-mail address above, but I just didn’t realize how many e-mails I would get. I suggest posting your questions about these advisors on the Bogleheads forum on http://www.diehards.org.

    Cheers, Mills

  164. Hi, I want to thank all who contributed to this blog. I learned a lot here.

    For those who care to comment:

    1) I’ve moved overseas a few years ago and have seen my US-based assets wither by more than 25% simply because of currency shifts. How would one hedge for that in a portfolio? There is a good chance I will retire here. It’s a small country, so I wouldn’t want to put the majority of my portfolio in local holdings.

    2) Are interest rate markets really a Random Walk? Seems that the Fed controls the interst markets and that it can’t go much lower, but can go a lot higher. It seems like suicide to invest in fixed income — the rates seem to have a much stronger chance of going up than going down any further causing capital losses on the fixed income investments. Also, a money market account in Capital One which now pays 3.75% seems to be a “lower volatility” investment with returns near the short-term bond funds and seems to track them. Hard to see why to put the money in the short-term bond fund.

    3)Further random walk questions:
    – Does the academic research also show that currency markets are also a random walk? Returns in overseas investments has been fueld by depreciation of the dollar. In local currencies the gains were not nearly as impressive. Do we say the dollar is likely to rebound, or treat currency as an “efficient market” also.
    – Are the real estate markets really a Random walk? If real estate prices are such that the rent one can get on property is lower than what it would take to offer a reasonable return if one bought the place, don’t we say that the market is speculative and bound to come down in price? Wasn’t that clear to anyone watching the US real estate markets in the last few years?

    Thank you. I’m really excited by this approach to investing, but a few remaining issues remain regarding how to apply outside the US stock market.

    Warm regards,

  165. Derek Tinnin says

    Hi Laib,

    Here are a few thoughts:

    1) Big picture – when you hedge currency risk, you increase the correlation of returns between US and non-US assets, which reduces the diversification benefit/effect. Leaving currency risk unhedged, however, increases portfolio volatility. Currency movements, over time, tend to become less of an issue in the context of a globally-diversified portfolio. With that said, the most common way to hedge currency risk is through an unhedged foreign bond fund. For US investors, I tend to go with fully-hedged or selectively-hedged bond positions. With your situation, you might find that a little broader global diversification across all the major asset classes mitigates the risk more efficiently than holding a position for the sole purpose of a currency hedge (i.e., keep your eye on the whole rather than the parts).

    2) Whether the Fed leads the market, or the other way around, is a hot debate. The outcome of our success in gaming interest rates is random at best (which is the nature of speculation). Short term bonds (especially if diversified globally across multiple yield curves) are actually not a bad way to deal with interest rate uncertainty. Before TIPS came along, short term bonds were considered the original “inflation protected” bonds. If bonds are best-used to manage the volitility of your equities and yield is a secondary consideration, short term is the way to go. They allow you to take risk on the equity side where risk is compensated more effectively. Cash yielding more than short term bonds is usually a temporary situation and “knowing” when to switch from one to the other can have unintended consequences. DFA’s variable maturity strategy is one approach that provides a solution to this dilemma.

    3) Efficient markets are often confused with accurate markets. Efficient simply means fair. In other words, the nature of an efficient market is that securities are priced fairly (the same for everyone at any given moment) so that no group of participants have a consistent edge over another group. A review of Equilibrium-Based Investing might be helpful. Here’s a couple of links:



    Hope that helps.

  166. Hi Derek,
    Much thanks for the reply. I’ll check out those websites.
    Best regards,

  167. Regarding the “Gorlow/Ferri/Evanson issue” Mills refers to, I’d appreciate if anyone who has Mills’ reply on these advisors would forward to me at laib2400@yahoo.com (this is a temporary email address).

    Thank you.

  168. Hi Folks,

    I’ll admit that I caved in and fielded another e-mail from someone here, which turned into a call, and then a follow-up e-mail – all about choosing advisors. I thought I would paste my summary of the dilemma here while leaving out the names of any advisors and their firms. I think that’s a fair way to go about it.

    There is no perfect choice. Fellow readers of this blog who are looking for advisors: We’re in the right stadium (or ballpark). All of these advisors are in the same seating deck – perhaps the 200 level – and in the same seating section – maybe Section 204, between home plate and third base. Some of them are in different rows of this seating section, but we don’t know which advisor is in which row. However, we can take solace in that the seating section overall is pretty darn good.

    All of these folks have drawbacks. And while there may be more capable advisors with higher fees, there are also a lot of less capable advisors with higher fees. Using the parallelism of efficient market theory, can we spot the flawless and reasonably priced advisors in advance?


    If we can, everyone can, including the advisors themselves, and they – through the market for advisors – will price themselves out of our price range. Is there a flawless advisor out there? Probably. And someone will find it through a lot of research…

    but also through some luck.

    We can take a long time to research our options. I’ve taken close to ten years and have been mostly in individual equities but also in too much cash. I’ve missed out on a lot of opportunities, going back to the tech boom in the second half of the ’90s and including buying in when the markets tumbled in 2002. Through this time I’ve gotten myself into the right ballpark and into the right seating level and the right seating section.

    But how much more time do I want to take in choosing a seat? Sooner or later the game will be over. Choosing a seat at this point is really a matter of personal preference, or as the pessimists might say, picking your poison.

    – No errors & omission insurance?
    – A very young advisor with limited experience?
    – An advisor with not much under management?
    – A advisor who will give you a take-it-or-leave-it portfolio with some seemingly undesirable options?

    – An advisor who is primarily an author and who doesn’t have clients that one can find through third-party sources (and thus avoiding the client reference thatt the advisor hand-picks) ?

    – An advisor with a weird strategy that is not intuitive and that includes active management?

    – A capable advisor who will channel you off to a less-capable associate or someone with whom you don’t feel much rapport?

    – An advisor whose track record and office look great but who has the triple the fees of the others?

    – An advisor who is rumored to be over-stretched with no office help and who was reported to have made a mistake in setting up another new client’s portfolio?

    – An advisor with limited information known about his/her thinking? (Limited website, no posts on online forums, no books authored, etc.)

    – An advisor that prefers the inclusion of an asset class that you have a strong distaste for (maybe emerging-market bonds or commodities)?

    – An advisor who might be very close to retirement, thus warranting a new advisor search very soon?


    – A do-it-yourself strategy that might fall victim to your emotional impulses in tough times? This one could also be dangerous if you are handling the money of a loved one too. What shape will they be in if something happens to you?

    Just like with setting up the asset classes of one’s portfolio, your final choice of the above options should be the one that lets you sleep most soundly at night. Sometimes we have to go off of our gut feeling and not our rational minds, and the best way to perceive our gut feeling – after we have narrowed the list as much as possible – is to meet with the possibilities in person.

    – Mills

  169. This is a very interesting conversation where facts and fiction are cleverly interlaced with an incredible amount of self-serving marketing spin by self-proclaimed “DFA advisors.”

    I only have a few comments:

    1) There is NOT SUCH THING as a DFA ADVISOR. There are about 1100 advisors who have attended a 1 1/2 day DFA seminar that gives them access to DFA funds. And that is all there is. Where the term “DFA ADVISOR” came from is a mystery. It did not come from DFA. It is my belief that this term was created as a marketing gimmick by some advisors who are trying to impress people, or have nothing else of value to offer.

    2) If an advisor believes that one mutual fund company can be all things to all people in all asset classes, they should not be in the business of managing money.

    3) Advisors need to do their own research. They should not be blindly following the recommendations of any one mutual fund company, and I do not care if that company has 100 Ph.D’s and CFAs.

    4) My firm, Portfolio Solutions, is NOT a DFA advisor, nor are we “One Dimensional” in our fund selections, nor do we allow investors to make their own decisions (by selling access to DFA funds as some advisors on this board apparently do). For the past 9 years, we have been selecting the best index funds in each asset class for our clients, whether that be a DFA fund, Vanguard fund, ETF, or some other company. (PS, I also agree that DFA funds are NOT index funds. They are asset class funds).

    Thank you!

    Rick Ferri

  170. Mills Chapman says

    Well said, Rick, but I think a fair amount of folks just say “DFA advisors” as shorthand for those advisors with access to DFA. Good ol’ American culture here, where everything is abbreviated for expediency: Instead of touchdowns and “by the way,” we have TDs and btw. “DFA advisors” is just a way for us to refer in two words to those folks who have access to DFA funds for their clients. Let us know if there is another way to refer to these advisors in two words. Most smart folks would only consider you or other DFA advisors that know how to think beyond the DFA family of funds for investment possibilities – and avoid those advisors who just push DFA funds and know nothing else.

  171. Derek Tinnin says

    Hi Rick,

    Good points. There is no such thing as a “DFA Advisor.” There are “DFA-approved” advisors (which I stated previously above), and that doesn’t mean the advisor has superior competence.

    For some, using “DFA” as an indentifying term helps describe a philisophical stance which is unique. When you said that DFA funds are not index funds, you hit the nail on the head. DFA is a non-index fund approach to passive investing. Weston Wellington calls it “equilibrium-based investing,” but until that becomes a common term, “DFA” is what will be used.

    I’m not sure who on this blog is exclusively DFA, but of course the best tools available should be used when building portfolios regardless of the company that manufactures the funds. If you are philisophically aligned with an index fund approach (or if that is what is appropriate for a client), you have a lot of choices available to you. If you are aligned with the equilibrium-based approach (and that is what is appropriate for a client), your only real choice is DFA (at least for most equity asset classes). If another equilibrium-based fund company comes along, that would be great, but until then, DFA is it. For the DIY investor, indexing is the way to go. For the advisor client, it depends on the circumstance, but I personally do not view DFA and index funds as interchangeable parts.

    I’m certain the sharp people on this blog can distinguish between fact/fiction, etc. and good ideas speak for themselves, regardless of the source of the comment.

  172. Structure says

    Sorry for my delayed response. I rarely check this forum. Duane, I understand your point about the difficulty of determining how much value is added by the advisor versus the fee structure.

    Most advisors use model portfolios. Some (and this is most often true of low cost advisors and/or advisors that work with small accounts) use their models exclusively. Others may alter the model in order to develop a portfolio specifically designed to provide exposure to risk factors that make sense for the individual client. The only way to evaluate this is to examine historical returns net of fees for the advisors that are being compared. This may not be meaningful if you require a portfolio that varies a lot from the model(s).

    Also, understand that running an advisory business is not without cost. Although efficiencies vary somewhat, service levels tend to be correlated with fee structures. An advisor with a reasonable fee structure and/or higher minimum account size can afford to spend more on client service. An advisor that charges based on a percentage of assets has an incentive to work closely with the client in order to add more assets under management (additional accounts, family members, etc) whereas a fixed fee advisor has a financial incentive to spend as little time as possible servicing a large number of clients.

    I’m sure that there are other points of view (and everyone is entitled to their own opinion), but I think this subject has been beaten to death.

  173. curiousmom says


    Do you have a website?
    Are you a DFA-approved advisor?

    If so, could you direct met to your website?

    Is there a way to exchange information between posters here off-site, in a private manner?


  174. Structure says

    Curiousmom –

    I only post here in an effort to clear up the many misconceptions about DFA and the advisors that work with DFA’s funds. There are some good advisors that post on this board, but I am most familiar with IFA and Talis. I don’t agree with everything that Ferri says, but his firm has a good reputation and he’s right about the most important points. I think that they have a fairly large minimum account size. I’d talk with at least a couple of these firms if you’re interested in a good passively managed portfolio.

  175. Seems to me the direction DFA advisors takes is a standrd “cookie cutter” wealth distribution which can be matched through Vanguard with out the fees. I have yet to see DFA even close to their peers in their respective groups. 50% at best. Not good when looking for the best return. Money Magazine consistantly beats DFA with their choices and with out the fee as their funds sink 8-15 % or more. The fees over 10 years could equal 100K if they had been invested and not paid for advice. I’d much prefer to distribute that to my children.

  176. Derek Tinnin says

    Hi Dan,

    If you want “cookie cutter,” the morningstar style box approach is a good way to go. I assume that’s what you are using when comparing against peer groups.

    Perhaps you haven’t fully compared DFA and Vanguard. Here’s a couple of places to start:



    Hope that helps.


  177. The cuttie cutter I refered to is the fund choices DFA advisors have reccommended on this site and whom I have talked to in trying to decide which way to go.

    Thanks for the comparison info. Problem is, its outdated and not worth the time to read. I have read this when it first came out and before the market and economy experienced the downturn.

    What does the future hold for investors who are looking to take advantage of the potential gains that can be found out there. Whitch sectors show the most potential and why areen’t there more sector funds offered by DFA ?


  178. Derek Tinnin says

    I see what you mean now Dan. You are an active investor shopping in a passive store. If you need sector plays (financial, energy, tech, healthcare, etc.) or if you are looking for a short-term market forecast, DFA isn’t the way to go. An investment strategy based on predicting the next hot sector (active management) is the polar opposite of the underlying philosophy/science behind what DFA offers. It’s up to you to believe what you believe in terms of passive vs. active and shop for your funds accordingly.

    If you are interested, here is more propaganda to review:

    The best investment advice you’ll never get by Mark Dowie – “For 35 years, Bay Area finance revolutionaries have been pushing a personal investing strategy that brokers despise and hope you ignore.” http://www.sanfranmag.com/story/best-investment-advice-youll-never-get#story_top

    Black Swans and Market Timing by Javier Estrada – “Do investors obtain their long term returns smoothly and steadily over time, or is their long term performance largely determined by the return of just a few outliers? How likely are investors to successfully predict the best days to be in and out of the market? The evidence from 15 international equity markets and over 160,000 daily returns indicates that a few outliers have a massive impact on long term performance. On average across all 15 markets, missing the best 10 days resulted in portfolios 50.8% less valuable than a passive investment; and avoiding the worst 10 days resulted in portfolios 150.4% more valuable than a passive investment. Given that 10 days represent less than 0.1% of the days considered in the average market, the odds against successful market timing are staggering.” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1032962

    Recessions and Investor Behavior by Larry Swedroe – “…even investors that could perfectly time their exit from stocks just prior to the beginning of a recession and reentry into stocks immediately upon the ending of a recession would have failed to benefit from such a strategy. And the analysis does not take into account the costs (especially taxes) of such a timing strategy.” http://www.indexuniverse.com/sections/research/11/3648.html

    Good luck!

  179. Brian QUI says

    I have been with DFA funds since 2004. Just in the past few weeks I have lost all the gains, now my return is negative. Do you guys know what is going on with DFA funds, any troubles with them?


  180. Structure says

    It’s hard to imagine how that could be the case in any reasonable portfolio. What DFA funds make up your portfolio and when in 2004 were they purchased? There is nothing “going on” with DFA. Their funds are doing exactly what they are designed to do – providing reliable asset class returns. You need to discuss this with your advisor. If you haven’t had this conversation with the advisor and are looking for advice from this message board, something is clearly wrong.

  181. Structure says

    As a follow up, I looked at every DFA fund that has existed since Jan 1, 2004 and the return of that fund from Jan 1, 2004 through June 30, 2008 and from Dec 1, 2004 through June 30, 2008. None were negative or even close. Brian – talk to your advisor and if he can’t explain it to you, find another one.

    This is the type of post that presents disinformation that causes confusion for people that are trying to make good decisions. If it’s honest, and simply a result of misunderstanding data, let’s clear it up. If it’s a deliberate attempt to confuse people with bad information, it won’t work.

    If you’d like to see what DFA’s performance numbers really look like, go to http://www.dfaus.com/strategies/performance/

  182. Structure says

    Dan, DFA does not design portfolios, advisors do. If you’re getting “cookie cutter” portfolio design advice, perhaps you are talking to the wrong advisors. Or, it may be that the advice is valid and the portfolios are well designed.

    I ran a a comparison of the 10 year numbers through March ’08 for a DFA based portfolio designed by an advisor (and not terribly different from most advisor portfolios that I have seen) against the Morningstar universe of funds. The advisor portfolio was adjusted for a 1.0% annual fee, which is the most you should pay. This was compared to the load adjusted return of the universe of Morningstar funds to see how many matched or exceeded the return of the DFA portfolio with an equal or lower standard deviation. Of the more than 20,000 funds in the Morningstar database, the DFA portfolio outperformed all but 95. Only a handful of those were diversified funds — most were pure asset class plays that just happened to be in the right place during this time period. No reasonable investor would invest in a single asset class. Of the few diversified funds that did outperform the DFA portfolio (less than 0.2% of the fund universe), NONE had been recommended by the amateur retail financial media that you cite here. The likelihood of you picking one of these funds in advance is near zero.

  183. Brian QUI says

    Thanks Mr Structure. I started with DFA starting from the end of 2004. My portfolio is a kind of normal one, 10% fixed income, 25% international, and 65% domestic stocks. I did talk with my advice but all he said was that I should not take any short term valuation. In 2005, the gain was like 19%. In 2006, the gain was -2%, and just in the past 4 months, this portfolio lost 12%. So the avergage return for my portfolio since 2004 is now a bit below 0.

    Is this reasonable? Thanks

  184. Brian QUI says

    Hi Mr Structure, thanks for the info. But no, it was not my intention to confuse the people at all. I will talk to my advisor.

  185. Structure says

    Brian – your advisor is right when stating that you should focus on long term returns, but 2006 was a great year for equity asset classes. With a small/value tilt and this international exposure, your portfolio should have had a return of 18% or more during that year. The 2007 results should have been more like +3%. This makes me suspect that there may be excessive fees being charged. You should have another advisor review the results.

    I understand that this was a sincere question. I hope this helps.

    Also, your portfolio exhibits excessive home bias – too much domestic equity exposure. But, this would not have explained such poor performance in recent time periods.

  186. Brian QUI says

    Once again, thanks for the info, Mr Structure.
    You are right, I did have 19% return in 2006 but I had
    -1% return in 2007, after 1.1% fees. I was telling my
    advisor that the return for 2007 should be 3% too but
    he said again that I should look for long term.

    I have noticed that, DFA funds performed very well for 5 yrs,
    but why most of them dropped so sharply YTD, in comparison with
    the index in the same categores? That is why my total balance has
    dropped so much YTD, I am now even losing my cost.

    BTW, 3-yr return seemed to have lots of negative returns too, but you said you did not see any one of them?


  187. Structure says

    Brian – 1.1% is a high fee. Unless you have a small account (less than $100K), this is unreasonable. I would also question the structure of the portfolio with the return you saw in 2007. You should probably consider other advisors.

    There are no DFA funds that could be used in your portolio that have a negative 3 year return through June 30, 2008. But, July has been a disaster in the equities markets, so there may be a few negative 3 year returns at this point.

    Investors frequently compare performance to the wrong benchmark. DFA’s funds typically outperform the appropriate benchmark index over any reasonable time period. This is because they have stronger exposure to risk factors. The same thing can cause them to underperform the benchmark index in a down market. It is exactly what you would expect from the factor exposure.

    Your advisor is right about one thing. Your perspective should be long term (and that’s not 3 years – it’s more like 20). If you stay disciplined, it’s highly probable that you will be rewarded.

  188. Thanks for the reply

    Taking Brian’s situation into consideration and the potential tax loss advantage are you suggesting to your clients to sit tight and let it ride ?

    Looking at the total financial picture should be addressed. Brian might be one of those situations where a sell and tax loss could help the losses the market is handing him.

    DFA should have similar funds avaialble to avoid a wash sell for Brian and other clients.

    Thanks for the constructive reccommendations.


  189. Brian QUI says

    Thanks guys, for your reply.

    My total balance is over $100k, what would be the reasonable fee?
    And that is all my IRA money, I can actually sell low and buy low
    if I move out of DFA to Fidelity.

  190. Structure says

    Dan is right. There are some good options for moving within DFA and avoiding wash sales for taxable accounts if you have a loss. With DFA’s new core based tax-advantaged funds now available, this could be a smart move that will boost after-tax returns in the future.

    Brian – moving to Fidelity would be a bad idea. Examine the long-term performance of Fidelity’s funds versus DFA. There is nothing compelling there, at all. Your fee for an account balance over $100K should certainly be less than 1.0%.

  191. Brian QUI says

    Structure, my advisor is with a kind of big public accounting firm and my account is with Schwab.

    The funny thing is that my money with Fidelity that has been maintained by myself has performaned much better than DFAs 🙂

    Fidelity does have some very good funds too. Are you sure that the DFAs are better, why?

    Thanks a again and have a good weekend.

  192. Brian QUI says

    Hi Structure, do you know how I can find DFA advisors? Do you have any web links I can use? Thanks

  193. Structure says

    Hi, Brian –

    I’ve tried to post replies a few times and have not been able to get the site to work. Take a look at my earlier post about comparing a well designed DFA portfolio to the universe of mutual funds. That includes Fidelity, and there were no Fidelity funds in the very few that managed to outperform. If you can let me know which funds are in the Fidelity portfolio, we can compare it to a DFA portfolio over multiple time periods. That would probably be educational for everyone.

    Accounting firms frequently employ turnkey asset managers to handle investment work. That adds another layer of fees. 1.1% for an account over $100K is definitely too much.

    You can find advisors that work with DFA through DFA’s public website at http://www.dfaus.com.

  194. Brian QUI says

    Hi Structure, are you sure that we will have to use DFA approved advisor to buy DFA funds? It seems that my account at Fidelity can buy at least the following funds, thanks.

    DFA International Value Portfolio II (DIVTX)

    DFA US Lg Cap Value Portfolio II (DFCVX)

    DFA US Small Cap Value (DFSVX) DFA US Small Cap Value

  195. The Fidelity website states that DIVTX, DFCVX, and DFSVX are “restricted to certain retirement plans.”

  196. Structure says

    DFA does offer some funds within retirement plans, as Jane mentioned. No, you can’t buy them in a typical Fidelity brokerage account. Also, DFSVX is closed to new investors.

  197. Couch Potato says

    Does anyone have any experience using a portfolio designed by Symmetry. My advisor is pushing this as a comprehensive solution for me.

  198. No, but would you be able to include a web address or more information?

  199. Structure says

    There are much better portfolio designs. Also, you’ll be paying two levels of advisory fees to Symmetry and to your “advisor”. You’d be much better off to find an advisor that is capable of doing their own portfolio design and works directly with DFA. Symmetry as a middleman adds no value for the client.

  200. I am curious whether anybody has any experience with what used to be Pacific Asset Management, now Sagemark Wealth in the Seattle area. Bill Schultheis of Coffeehouse Investor fame heads up Sagemark. They construct portfolios of DFA, ETF and Vanguard funds.

  201. Structure says

    It took about 10 seconds to find their website – sagemarkwealth.com. Unfortunately, there isn’t a single bit of useful information on it.

  202. Derek Tinnin says

    Just an FYI. DFA introduced the International Vector fund on Thursday. Like US Vector, this fund offers a way to apply a higher tilt toward size/value risk factors and potentially do it with one fund instead of a combination of two or more funds. Because it is a fully-integrated approach, it should provide a little more cost savings and lower total trading costs when compared to multi-fund strategies.

  203. Passsive Indexer says

    I’m still looking around among the various advisers listed above and thought I’d add one more. They have moderate fees, low minimums ($70K or less), a “real live person” to talk to, and a DFA portfolio with good returns over a long time. Abacus Portfolios http://www.abacusportfolios.com Probably a cookie cutter portfolio but maybe I don’t want to be involved in screwuing up my own returns any more “customizing” and moving around. Looks like they have some other service for very large investor too. Will be interested in what people think

  204. mothers helper says

    What a useful blog–thanks to the contributors. If I can lay out my conundrum: My father recently passed away leaving my financially-inexperienced mother with a fairly sizeable 403b account (about 1.2 million) in uninspiring TIAA-CREF offerings. She’s relying on me to point her in the right direction, assure her income and grow the portfolio for the family!

    I first started with Vanguard DIY and decided we needed more handholding. I then went to Fidelity Private Access which seemed competent, but I was unsure of the funds they choose (not all Fidelity, but seemed pricey). I then went to Fisher Investments and was frightened off by some dedicated internet enemies. I finally looked to Edelman Financial where I learned about these DFAs–but his fees (like 1.25% or more) are higher than what most of you are talking about. Is he a good choice (he uses DFAs plus ETFs plus periodic rebalancing–he also has a zillion model portfolios).

    So is Edelman Financial worth the $? Are others of these advisors providing similar service for less? Is the DFA approach equally compelling for retirement and cash accounts? If it was me, I’d just take the chance and take my lumps. But it’s my Mom! I ahve to do right by her! Thanks!

  205. The question is how old is she. How long does she expect to live and what are you expecting to get as an inheritance. Does she have health care issues and enought insurance to cover the worst case scenario of dependant care. Just look at what you could gain by doing it on your own. The fees themselves can knock out 100K in gains over time if they were reinvested. DFA is not a Genie in a bottle with 3 wishes all of them being 8%+ gains and doubleing your portfolio in 9 years. The funds are getting hammered just as bad as everyone else out there.

  206. Derek Tinnin says

    mothers helper,

    TIAA-CREF actually has several low cost options with which you can build a reasonably good portfolio. Going the Vanguard route is a great choice whether you are DIY or not. If need help or a coach, interview a few of the firms mentioned on this blog directly, understand their service and philosophy, and make the decision you are comfortable with. You will know the right answer after talking with a few advisors. I don’t want to rehash the fee discussion, but at 1.25%, you would be paying $15,000 per year vs. $3,000 to $6,000 elsewhere. Only you can determine if the higher fee is worth paying. Value is in the eye of the beholder. You just need to find someone you like/trust and who offers a fair level of service for a fair fee.

    Of course the investment approach used matters a great deal as well. The design of the portfolio and the total cost of executing the strategy will matter more than the relative fee differentials between advisors (up to a point).

    The default position for most investors is to start with a market-risk portfolio, and then only deviate from that position for a reason. Most advisors/money managers offer a way to deviate from the market in hopes of improving your investment experience.

    So if you hire an advisor to implement a deviated allocation, make sure the approach makes sense to you and you have a high degree of confidence that it will actually work. You are the one who has to live with it (and pay for it), and a portfolio you can live with is more important than the “perfect” design. But design still matters…

    All portfolios can be plotted on a map according to their risk factor loadings for a given period in time. The resulting position reveals much about the investment strategy—or lack of one. That prompts a discussion that has been addressed briefly here, but I will bring it back up. Why deviate and how do you execute that plan?

    For the WHY part, it’s simply wanting better results than what TSM (the total stock market) has to offer. There are other reasons, but let’s just assume the goal is market-beating results.

    For the HOW part, this is where DFA and other choices come into play. Let’s assume you determine you are going with a 50/50 stock bond mix. You have discussions with 3 advisors (A, B and C) to determine how they can help you deviate from TSM in a way that’s worth doing.

    Advisor A suggests deviating by using a unique forecasting model to periodically overweight/underweight certain sectors to add value over time. Your intuition tells you that random chance is probably the main driver of success with this approach, it’s expensive, and it doesn’t seem to focus on consitent risk exposure. You determine that inconsistent risk leads to inconsistent results, so you move on to Advisor B.

    Advisor B is a big fan of index funds. He explains that to beat TSM, you have to take more risk than TSM. He focuses on adding exposure to size and value risk premiums that give you a reason to “expect” higher returns if you deviate from TSM toward higher risk small and/or value stocks. It may not work every year, but over time, you feel confident this plan will ultimately work because it follows the logic that risk and return are directly related.

    How much do you deviate? Advisor B explains that if a TSM positioning is a 0.00 factor load to small or value risk relative to what’s already in TSM, then a pure small cap fund is closer to a 1.00 (100%) factor to small cap risk and a pure value fund is closer to a 1.00 factor to value risk. So you might combine a small cap fund and/or a value fund to your TSM fund to get to a degree of risk somewhere between 0.00/0.00 and 1.00/1.00. The further from 0.00/0.00 you go, the more risk you add and the more tracking error to the market you add.

    You agree to target “moderate” 0.2/0.2 factor loads to size/value risk. Advisor B then recommends to allocate your equity holdings 1/3 to a TSM index fund (-0.03/-0.01), 1/3 to large cap value index fund (-0.15/0.44) and 1/3 to small cap index fund (0.8/0.2) to get close to the 0.2/0.2 tilt. The expense ratio of this 3 fund combo is very low at less than 10 basis points annually. Advisor B’s fee is lower than that of advisor A because he does not spend a lot of time on forecasting models, trading, etc. He would rebalance as needed, cultivate tax losses, provide performance reporting, offer misc. advice, etc.

    Next up is Advisor C who has a very similar view and service offering as Advisor B. Both believe passive investing is the way to go and both choose to deviate from the market by consistently targeting certain levels of risk. They also have a similar fee structure. When Advisor C hears Advisor B’s plan, he say’s that should work pretty well, but he asks why not use one fund to target the 0.2/0.2 tilt instead of using 3 funds? Two portfolios that both target 0.2/0.2 should have the same expected return, but execution costs matter, so the fewer moving parts the better. Advisor C likes index funds, but can’t find a one-fund solution using a single index fund. So he recommends DFA US Core Equity 2 – a “TSM-like” fund that is close to 0.2/0.2. No need to add additional components. The expense ratio is higher than the index fund solution at .23%, but you don’t need to worry about rebalancing between 3 funds – incurring transaction fees and potential taxes in the process. You also reduce the buying and selling from yourself, such as when the small cap fund sells a stock that is migrating to large cap (leaving the small cap index) and the large cap fund buys back the same stock – an unnecessary trade that represents a cost not accounted for in the expense ratio of each fund. Index fund buffer zones help, but still can’t completely prevent the problem. The integrated one fund strategy allows for stocks to migrate across market caps and styles more freely than they can when jumping from one fund to another fund, paying a toll along the way.

    I’m sure advisors D, E and F would have a different take on things. Is the difference of opinion among them on the design front more important than other differences such as experience, personality, business structure, etc? Do you not buy into a passive philosophy and go with Advisor A? Those are all personal choices that only you can make. A philosophy or approach either resonates with you or it doesn’t. Go with what you think makes sense for you. Other opinions are fine, but yours is the most important.

    Good Luck!

    general opinion only, not intended as specific investment advice.

  207. Derek is quite charitable in his response. Edelman’s fees are outrageous. The firm uses them to fund their massive advertising budget. You can do better with almost any other advisor that works with DFA.

    Both Derek and Frank make very good points. There is a much higher probability that a tilted portfolio using DFA’s funds will outperform over longer periods of time. For short time periods, it’s unpredictable.

  208. CoronaArgon says

    Actual Numbers: After 18 quarters in the market with a Terra Financial Planning Group conservative portfolio design(25/75 stocks-to-bonds) the average annual total return is 2.0 percent as of 10/22/2008. Genworth, a spinoff from GE finance, charges 0.75% per year for management fees.

  209. I have funds in USA in an American bank. While I dont have a US green card or citizenship, I have US social security number. I also have a distant relative who lives in the US with whom I am quite close. I understand DFA funds need a US residential address. Can I give their address ? My relative and family are okay with it. Will this pose a problem ? I do have TD Ameritrade, ETrade, Vanguard, Schwab brokerage account. I operate these accounts from my current country. I could have opened DFA account when I lived in US, but I didnt have sufficient funds in those days. Now I do. I like Talis’ low advisory fees. Do you think they will accept me as a client ? Paul Merriman did not, I asked them, but didnt mention to them that I have a US address. Does someone actually check if I live at the US address ? I do visit my relatives 2 times a year.

  210. CoronaArgon says

    Sadguy, I don’t know the answers to your questions. When an investor examines DFA on Morningstar, the inference is that anyone can own DFA funds if they have at least $2,000,000 to invest for each fund they want to own. It is a problem that I am not familiar with. On a personal note, I was surprised to receive your email. When I posted on October 22, I wasn’t sure that I understood the implications regarding personal contact. It was the first time I have ever posted to a blog.

  211. I have been working with a DFA advisor for several years and for what it is worth as a point of reference pay 0.25%/year. I am mostly pleased and know that the portfolio was structured specifically for me including allocation of asset classes to taxable and tax-deferred accounts (the former for me is larger than the latter so I may not be typical of those posting hear). The portfolio uses a mixture of DFA and Vanguard ETFs and individual muni bonds. I have learned a great deal in reading about 85% of the posts.

    My thoughts, primarily on what differentiates one advisor from an other:
    1) Rebalancing: I don’t think it has gotten enough discussion here. Advisors I have researched as well as academic papers suggest different approaches as being effective. AND I believe that this can be a significant factor differentiating advisors and (after tax and after transaction costs performance). Since most of my money is taxable this becomes an important factor. This recent (Jan 2008) article in J. of Financial Planning has a study along with good overview http://www.tdainstitutional.com/pdf/Opportunistic_Rebalancing_JFP2007_Daryanani.pdf
    I expect that AFTER portfolio construction, the issue of rebalancing is vital. I do not think that there is a one-size fits all answer, and therefore a discussion with a potential advisor is vital. If one will have regular (or unpredictable) inflows/outflows from the portfolio might make the job or opportunity for rebalancing easier or nightmarish for the advisor.
    2) Portfolio construction (after a proper assessment of risk tolerance): Bernstein’s book (Intelligent Asset Allocator) has excellent discussion of this. Other posts here have accurately indicated that MVO is only as good as the data that is fed to it, and as Bernstein shows in his book if the future returns of asset classes and/or correlations change even slightly from the historical data then the initially well-constructed portfolio may be quite far from the efficient frontier over the next decade or two. The optimal portfolio construction is both a worthwhile goal/exercise and is elusive. There are other statistical approaches to optimization and there is a good article on this here http://www.indexinvestor.com/Free/modPorts.php
    3) As a subset of portfolio construction: Only a few index type advisors discuss and then use some or all of the following asset classes (timber; commodities; gold) in very small percentages.
    4) Bonds: I am not certain that I agree with the either/or depiction of the use of bonds in a portfolio as for producing income and total return versus to reduce portfolio volatility. I think both need to be considered and is perhaps a particularly important differentiator amongst advisors for a taxable account especially if one has say a substantial (30 to 40%) bond allocation. After tax and after transaction costs, the bond approach might make a meaningful difference in performance. If one is in a high tax and a high state tax situation, I think it is important to address. Specifically do some or primarily munis make sense in constructing the portfolio? Are you in a state that has a low expense, well run muni fund as an option? In the current early 2009 environment are munis a good deal or not? There are pre-funded individual muni bonds that while not-insured should be quite safe. The DFA bond approach seems to be an excellent one, but might not be the best choice for all clients. Many DFA advisors have an excellent background in bonds and some would recommend munis and some with similar background of having been a bond broker would not put them in a portfolio. Unfortunately it is yet another area in which educating oneself is important so you can evaluate an advisor.
    5) Fees: If one is a careful shopper, I think that you can get good value and a match to your own needs. At every fee level, I expect that there are those that provide better or worse value. Personally I tend to start with those who have a lower fee stucture <0.35%/ year and when interviewing those who charge more ask myself and them to prove to me how they are earning that extra fee.

    Thanks for listening to a long first post. Edward

  212. Thanks for the insightful comment, Edward! Are you inclined to reveal who your advisor is? If you wish to keep it private, you can also just message me:


  213. CoronaArgon says

    Edor, 0.25% is a very competitive fee. SEC registered investment advisers use ADV II (http://www.sec.gov/answers/formadv.htm) to specify fee structures. Typically, the fee depends on your assets under management. For example, as of May 2004 TFPG of Schaumburg, Ill, charges 1.40% for portfolio values from $250,000 to $499,999 going down to 0.85% for $5,000,000 to $9,999,999. Above $10,000,000 the fee is quoted on an individual basis. Also, “For portfolios with 75% or greater bond allocations, the annual fee shall be .75%, EXCEPT for DFA Global Funds.”

  214. I have read alot of these comments. I dont see any within the past month . What is everyones thoughts now about DFA given the market losses.

    Also, do those of you who recommended Tails and IFA advisors still recommend them given what has happened in the market. Did they properly determine your risk level before the collapse. Mine didnt, so I am looking for an advisor who can assist me in that are.


  215. Edor or Jonathan,
    If you do not mind, please email whom the advisor is that Edor references in his January 9, 2009 post. Thanks


  216. CoronaArgon says
  217. Derek Tinnin says

    For the Bill Gross commentary, I think the last sentence says it all – “Investing is no longer child’s play.”

    But then again, it never was. Risk and return are directly related. There are no shortcuts. Maximum diversification across not only the broad asset classes, but across dimensions of risk has been and always will be the antidote to having a shot at investment success. We certainly don’t need forecasters to protect us. It’s not as if they gain 30 IQ points after a bear market. Yes, I hear the Roubini/Taleb crowd out there…My response to them is that investors should always assume stocks can and will lose 50% or more at any given moment for any given reason. That’s part of the deal. Plan for that in advance. You don’t need Roubini/Taleb to tell you that.

    Mr. Gross points out that bonds have outperformed stocks over various trailing time periods. This is not a new phenomenon, but it’s also very misleading. The reality is that investors who diversify across dimensions of risk and had a reasonable stock/bond balance do just fine.

    For example, let’s look at the numbers since 1968 as an example (2/68 – 2/09) – a 41 year period I have seen pop up in various articles lately to imply that “stocks for the long run” is a myth. Yes, over that period, 20 year Gov. Bonds beat the S&P 500 Index. But here’s another angle you won’t see:

    1 mo. T-Bills: 5.83% annual, 923.99 total return
    5 Yr. Treasuries: 7.86% annual, 2141.65% total
    Long Corporates: 7.82% annual, 2104.64% total
    Long Government: 8.29% annual, 2532.43% total
    S&P 500: 8.60% annual, 2861.79% total
    CRSP 1-10 (TSM): 8.55% annual, 2806.12% total
    Small Cap Value: 12.62% annual, 13094.12% total
    Large Value: 10.98% annual, 7134.24% total
    Small cap: 9.25% annual, 3683.34% total

    A simple 30/30/40 mix (TSM/SCV/5 Yr Treas): 10.03% annual, 4975.75% total with about the same standard deviation as long government bonds…

    When we look at various other periods (including the Great Depression), multi-factor, balanced investors held up a lot better than most.

    The worst decade (in terms of real return) was the period ending 1950. You would have been 73% behind inflation, worse than any other 10 year period for stocks ever, had you been positioned in the asset class commonly viewed as the on with the most “saftey.” – U.S. T-Bills….

    This is not an stock vs. bond debate. Own both and forget about it.

    Will the future be different? Of course it will. Prices, however, remain as important as ever. Prices will still move to equilibrium and clear the market and still be our best estimate of risk and expected return. We don’t know what future returns will be, we just need to make sure we capture them as best we can. You have 3 choices – active management, indexing, equilibrium-based funds. Good luck!

  218. WOW – After reading most of this information posted, I feel like I’m in first grade walking into a MBA classroom. Let me first start out by saying I’m a novice with all this so please don’t jump me.
    A financial adviser “friend” got me into DFA back in 02/07 with me investing over $300K. His firm “bought into” another firm who was sold a franchise by Symmetry Partners who offered DFA. My risk allocation was set at 60/40. The first few months showed very nice gains at around 12% as the DOW topped 14,000. As the economy/DOW started to tank, so did my portfolio. At the bottom of the DOW (around 6,800), my DFA portfolio was down around 35% from where I bought in (around 11,000). Here’s what I noticed over time. AS AN EXAMPLE – If the DOW went up 100 points, my DFA portfolio gained about $1,000. However, if the DOW fell by 100 points, my DFA portfolio fell by about $2,000. I admit I’m not an investment genius however, this performance did not seem to be a wise move on my part. At the moment (DOW around 7,950), my DFA portfolio is down around 28% I believe my fee’s are .25%.
    I have a simple question. What am I doing wrong or is everyone else in this same sinking boat? All I get from my FA is, “stay the course” or “what do YOU want to do?” My answer has been “if I knew what to do, I wouldn’t need you”. Do I need a new FA?
    Any help would greatly be appreciated.

  219. Structure says

    A properly diversified portfolio will not track the DJIA and should not be expected to. The DJIA is a very small set of 30 large cap stocks. There are times when the index will outperform the total market or a well diversified equity portfolio. There are more times when it will not, particularly if the equity portfolio is tilted toward small/value.

    You are not paying 0.25% if your advisor uses Symmetry as a turnkey asset manager (it’s not a franchise). You may be paying 0.25% to your advisor, but you will be paying a lot more than that to Symmetry. This is one of the most expensive ways to own a DFA based portfolio.

    Do you need a better FA? Probably so. Try working with an advisor that has a direct relationship with DFA and more knowledge of capital market behavior and portfolio construction.

  220. Craig Towles says

    I have used DFA funds for over 10 years with a company called Schulmerich & Associates, LLC. They offer DFA portfolios to match your risk tolerance level and rebalance your account as part of the annual management fee of .75%. They also offer free retirement plans to see if you are on track for your retirement future. You can check them out here http://www.schulmerichandassoc.com . Friendly and very quick in getting back to you on questions you may have.

  221. Have any of supporters “index funds” ever wondered why they are so popular? It gives retail investors another tool to use. The problem is most retail people don’t know how to use the tool. Short-term minds, inablility to capture income streams, excess trading and the like are the bombs that cause pain to this group, even though most of them don’t even know it. If I told you that “players” on Wall St. use index fund data to go aginst the grain and take contrarian approaches, that in turn hurt the majority of index funds, what would you say? Do you really think that actively managed portfolios aren’t going to use economies of scale, knowledge, expertise to put themselves in a position to benefit? If they are good, there is a good chance of increased gains, income, etc.

  222. test post

  223. Derek Tinnin says


    If only the evidence of consistent active management outperformance showed up in the data…

    There is no doubt the some active managers will outperform. Knowing the outperformers in advance is the dilemma. The other issue is that even if you find an active manager that outperforms, do you benefit or is that outperformance consumed by management fees?

    This study may shed light on that question:



    “In this paper I have argued that much of what we observe about the behavior of actively managed mutual funds is consistent with a world with rational, value maximizing, investors that compete with each other. An important insight is that returns cannot be used to measure managerial skill. Because prior studies have generally used return to measure skill, they have come to the erroneous conclusion that active managers add little value. Given their overall levels of compensation, one would expect that in aggregate they should have significant levels of skill and thus add considerable value. I show that when skill is measured correctly, the data is indeed consistent with the existence of relatively many skilled managers who add considerable value but capture this themselves in the fees they charge.”

    I’ve got more if interested…and I do agree that an investor’s (and advisor’s) behavior is often enemy #1.

  224. Derek Tinnin says

    Just posted the following article from “The Trade News” that gives insight into DFA’s approach to trading:



    Traditional managers, active or passive, have to own a particular stock. With active managers, the alpha comes from idea generation,
    not the trading desk, so their traders have to seek liquidity, which means crossing spreads and incurring implementation costs. Passive
    managers are required to minimise tracking error and the need to own a specific stock regardless of price. We’re agnostic to the particular stock held and have an enormous amount of order candidates. Consequently, we’ll allow others to be the aggressor and we’ll sit passively while they seek liquidity in our stocks.”

  225. In response to the post by Craig, Schulmerich & Associates has a pretty average fee structure for a fee-only advisor. Some of the other advisors mentioned within this forum offer more attractive fee arrangements. Note that his firm uses a tiered fee structure and be careful when comparing it to a pure breakpoint structure.

    This firm does have an interesting comparison of their fees to those of Ric Edelman’s firm. Edelman loves to make a point of how much less expensive it is to invest with his firm as compared to traditional active managers, but when compared with even the average DFA advisor, Edelman’s fees are quite high. It is apparently expensive to fund that nationwide radio show and all of his marketing efforts.

    Finally, a free financial plan is usually worth what you pay for it.

  226. This may have been discussed and I missed it but has anyone used or investigated Evanson Asset management? They charge a flat $2000/year advisory fee. Their philosophy is that, in terms of asset allocation, it takes no more resources to work a $5million account than a $1million account. Makes sense to me. Anyone?

  227. Advisory fees are for investment advice and a myriad of client services, not just access to DFA funds. Clients who don’t have these advantages, don’t know what they are missing.

    High quality passive investment advice includes far more than prospective clients realized.

    The many elements include: high levels of quality investor education, thorough and well tested analysis of investor risk capacity, a targeted and wide assortment of matching optimized risk exposures, lack of market timing, lack of uncompensated risk exposures (like commodities and alternatives), sophisticated tax-management techniques of funds, capital gains management and trading techniques, refined and mathematical based tax-loss harvesting criteria and 31 day reversal task management systems, customized software solutions that monitor rebalancing needs and trade-offs of risk control, trading costs, minimized tax liabilities, wash sale rules, paperless document management systems, dedicated compliance personnel and consultants with documented and maintained procedures and policies, customized client relationship software to track client related notes and tasks, support personnel to support high levels client services, cash inflow and outflow management systems for savers and retirees, benchmarking to several index portfolios and quarterly dollar weighted and time weighted return reports, bonding of all employees from fraud and theft, error and omissions insurance, trade error minimizing systems, sophisticated management information systems and personnel that develop and manage hardware and software solutions for disaster recovery, client document backups, email archiving systems, website content and print and digital presentations and the list goes on and on. The capabilities and qualities of advisors and advice will vary significantly in regards to these critical elements of an investment advisory firm.

    If price was all that mattered, we would all be driving Yugos.

    Here is a collection of bad advice stories that destroyed the presumed savings of a cheap advisor, see http://www.cheapadvisor.com. Caveat emptor.

    There can be a very high opportunity cost to clients of low cost advisors. You have to evaluate the quality of advice before you can establish a fair price of that advice.

    I guarantee you that not all advice is the same, even among so-called passive advisors. It turns out the clients have hire advisors who describe themselves as passive, but turn out to be active. Therefore they have different values to the client.

    It’s Unwise to pay too much…
    But it’s worse to pay too little.

    When you pay too much, you lose a little money – that is all.

    When you pay too little, you sometimes lose [a lot, or even] everything, because the thing you bought was incapable of doing the thing it was bought to do.

    The common law of business balance prohibits paying a little and getting a lot – – it can’t be done.

    If you deal with the lowest bidder, it is well to add something [to the bid] for the risk you run. [In other words, the increased risk is equal to a higher cost, that is not recognized in the price.*]

    And if you do that [add the risk of not getting what you should to the price*], you will have enough to pay for something better.

    – John Ruskin (1819-1900)

    Caveat Emptor, Mark

  228. Gary re: Evanson asset management
    I helped a trust migrate to and evaluate passive/index managers; I did much of the leg work of evaluation, and participated in all phone interviews. Amongst 8 possibles, and 3 contenders Evanson was chosen and was my recommendation. He is one of the smartest advisors that I have spoken with; he is very knowledgeable about research methodology and statistics based on his educational background and his direct investment experience. Read any of the very informative articles on his website written by him to get a sense of his thinking and his approach, which is not married to – he prefer a 1/N style of asset allocation. However he is not dogmatic about that and within a certain range welcomes input from client and will adjust asset allocations. We had a very intelligent conversation about the use of commodities in an asset allocation; as well as the all in day one versus investing a set amount over a period of several quarters.

    In spite of the quote offered in the post above, there are situations in which you can get extremely high quality at an affordable price structure. The account that is being handled is not much over his minimum account size and there has never been any sense amongst trustees that the service or access to him to answer questions is any different for us than for accounts that are 10 times the size.

    Personally I had used another advisor who charges the more typical 0.25%; is well regarded on many forums; and the experience was significantly inferior to that experienced with Evanson. Evanson is somewhat older and while he does not plan on retiring for a long while, as far as I can tell there is not as good a succession plan as I might prefer. That is one of the few drawbacks I see with Evanson.

    I would certainly recommend reading his website and then setting up a phone interview. You can only go so far with web and forum research, and then you need some personal interaction. Good luck.

  229. Actually Edward supports my concerns in his reference to two points in his post. He said, “We had a very intelligent conversation about the use of commodities in an asset allocation; as well as the all in day one versus investing a set amount over a period of several quarters.”

    It is always dangerous to assume, but from what I have seen the advisor recommends commodities and not putting in all of the investment at once. Neither of which are correct.

    We have spoken to a client that was advised not to invest in early 2009, which resulted in a huge opportunity loss of $9 million on his $20 million portfolio. This one error wipes out the fee savings of many clients over a long period. This is a case of a passive advisor gone active and a case for not all advice being equal.

    As far as commodities go read this: http://www.ifa.com/12steps/step11/step11page4.asp#1144

    As far as dollar averaging into the market, see this research from Schwab: http://www.ifa.com/Media/Images/PDF%20files/SchwabWaitingtoInvest.pdf

    this web site: http://www.moneychimp.com/features/dollar_cost.htm

    and this excerpt from Burt Malkiel”s book: http://books.google.com/books?id=jH4iWwJkfhcC&dq=malkiel+ten+rules&pg=PP1&ots=A4wHD-fHwU&sig=iB1K-D8BLtWvFT_bOZYySM50vgU&hl=en&sa=X&oi=book_result&resnum=1&ct=result#v=onepage&q=&f=false

    So I repeat: I guarantee you that not all advice is the same, even among so-called passive advisors.

    So if a client accepted this advice, there is a negative expected benefit, resulting in a high cost of the low cost advisor. Please remember that sometimes there is a good outcome from a bad process. And the lucky result from bad advice is just that. Don’t expect a bad process to have a higher expected return than a well documented good process.

    So did the client who paid a low fee really get a bargain? Does that client even know what they missed out on if their returns are not properly benchmarked to an index portfolio that matches their risk capacity on a quarterly basis? Answer: No

    In terms of material to read on advisor web sites, if you listen to Eugene Fama, investors should not even use the word bear market, because bear markets are only in hindsight. So a discussion about how to invest in a bear market is only useful in hindsight or in the past. One of the most common mistakes of advisors and investors is confusing hindsight with foresight. So one clue that you may be getting bad advice is a discussion about how you should invest in a bear market. Such a discussion can be found on a low cost advisor’s web site. One never knows what the market will do tomorrow and investments are always priced for a positive expected return. Otherwise, there would not be buyers. Otherwise, there would not be a positive historical return for risk-appropriate holding periods.

    These are just a few examples of how advice can vary. There is a long list of such topics, making the value of advice quite variable.

  230. Thanks, Edward. Nice to get some balance after Mark Hebner’s article. I reject his analogy of price consciousness leading to a Yugo. That implies people seek price alone and are not smart enough to evaluate value received. I liken value to the car I drive, a Honda Civic. I get all the value I need, safety, comfort, reliability in a Honda. I coud drive a Mercedes for 3 times the price but I don’t see the value. I think this is a better analogy for this advisor comparison. Mark Hebner mentioned a lot of services offered from a high cost advisor, some I value and some I don’t. I certainly don’t want to pay for those extras that I don’t need. For example, asset allocation is not rocket science. Different advisors may tweek allocations somewhat but in the end, it is not going to make that much difference, provided the allocation makes sense for the client. To claim that paying a higher price somehow guarantees one a more prescient or competent advisor is false. Also, I am a little put off by the notion that a high priced advisor is more rational when it comes to market timing, active investing etc. I am sure there are plenty of stories out there of clients getting bad advice from high priced and low priced advisors.

  231. Mark While I might agree with you on certain matters I think that you over simplify many investment issues. The question of all in day one versus investing a predetermined portion on subsequent intervals has been researched for numerous time frames by various people. The issue is both one of expected performance of the portfolio, AND it is also a question of the comfort of the investor. One of the better analyses that I have read is one that looks at it as an insurance question and while the expectation is that the sample population of hypothetical portfolios will do better following an all-in on day one approach, one can rationally choose to give up expected statistical performance (your insurance premium so to speak) for decreasing the likelihood that your particular random timing of entering all on day one happens to occur at a particularly poor time in the market cycle.

    I find your blanket statement: “It is always dangerous to assume, but from what I have seen the advisor recommends commodities and not putting in all of the investment at once. Neither of which are correct.” to be ludicrous. I doubt that you have direct experience of Evanson and to represent what you surmise his advice would be is not a wise position to take on a forum that is seeking meaningful dialogue.

    The issue of whether a small 3-5% allocation to commodities is “appropriate” is not a simplistic right or wrong choice. If you look at Evanson website articles you will see that as a starting place in portfolio design, he considers commodities to be “an alternative investment” and it is NOT part of his typical recommended allocation; however if a particular client understands the literature and chooses to have a small allocation to commodities then he is fine with implementing that for them.

    I don’t find your comment, or your attempt to quote me as proving your point to be in any way helpful. What I consider your mis-representation of another advisor, I believe reflects poorly on you.

    Glad to see that Gary is not snowed by your statements. Gary, I recommend the BogleHeads forum as an additional place to get opinions from investors who have used one or more index advisors. For example one thread that discusses Evanson )http://www.bogleheads.org/forum/viewtopic.php?t=16912&mrr=1225321600) Many intelligent posts on that forum. I can also speak highly of Derek Tinnin who has several posts here, although he was not selected as the advisor for the trust account.

    This will be my last post here, as I have too much else on my plate at this time.

  232. Edward, there are quite a few points that disagree on that I think you would have a difficult time supporting with any academic evidence.

    Commodities have no place in a strategic asset allocation portfolio regardless of what you or Evanson assert. Commodities barely outpace inflation over time and exhibit equity-like volatility. They are frequently used in actively managed/tactical allocation portfolios, but that’s all based on being able to predict when to own them. If you really believe that you or anyone else can do that, you’re being quite inconsistent in your investment philosophy.

    It is certainly true that a high price does not guarantee that an advisor is competent, as Gary asserts. However, many of the points that Mark has made are valid. I have had numerous discussions with the clients of both firms over a period of almost ten years. Some of Evanson’s opinions about portfolio management are conventional and others are not well supported by academic evidence.

    The entire focus of this forum seems to be about advisory fees. I find that amazing, but I suppose it’s the Bogle/Vanguard influence that exists here (and before you attack me, I have a great deal of respect for Bogle). It seems that the do-it-yourself investors actually resent the fact that they can’t access DFA’s funds directly. Ironically, it’s one of the reasons that DFA outperforms “retail” index funds even after the deduction of reasonable advisory fees.

    Read the DALBAR study on individual investor performance. Compare the impact of investor behavior to the difference in advisory fees. It’s overwhelming. In fact, simply knowing when and how to use tax management in a portfolio design can easily swamp the difference in fees between advisors. So can asset allocation, despite Gary’s lack of understanding. A greater tilt toward small and value produces a higher expected return. But, most advisors are too afraid of the client reaction to tracking error with the indices that are the subject of fascination with the average investor (and irrelevant) to build portfolios with factor exposure that even comes close to maximizing the Sharpe ratio over any reasonable period. The difference in return, again, can be much greater than the difference in advisory fees between firms.

    Vanguard is a great company. Bogle is a great man. But, Vanguard offers actively managed funds and active management does not add any value. Bogle ignores the small cap and value effects and suggests investing in the entire market. Why do you want to invest with DFA if you believe in Bogle’s philosophy? You obviously only agree with him when it supports your do-it-yourself notion about the value (or lack of it) that an advisor provides.

    Can we discuss something a bit more intellectually stimulating and useful?

  233. “If price was the only thing that mattered, we would all be driving Yugo.”

    I found that statement ironic; aren’t DFA funds the Porsche of index funds? What could a low-fee advisor do (differently from a high-fee one) that turn them into a Yugo?

  234. Structure says

    DFA’s funds are essentially building blocks of a portfolio. It is possible to construct any number of different portfolios of different asset classes (or different DFA funds) that have vastly different risk/return characteristics. It is the structure of the portfolio that determines performance. If you don’t understand this concept, you are missing the point of most of the conversations on this forum. Read “Portfolio Selection” by Harry Markowitz, or if that’s too academic, try Bernstein’s “The Intelligent Asset Allocator”. The seminal study by Brinson, Hood & Beebower found that asset allocation determined more than 90% of portfolio performance. This is true whether you’re using Vanguard’s index funds, ETFs, or DFA funds to construct the portfolio.

    “The Porsche of Index Funds” is a dumb description of DFA to start with. With one exception, DFA’s funds don’t track indexes.

    The advisor constructs the portfolio, thus the advisor’s judgement in that construction determines the expected return and risk characteristics of the portfolio. Beyond that, as has been previously explained, there are many other important differences between advisors. While it is true that some advisors that charge high fees do little to add value, many do.

  235. Structure, you wrote:
    “Commodities have no place in a strategic asset allocation portfolio regardless of what you or Evanson assert. Commodities barely outpace inflation over time and exhibit equity-like volatility. They are frequently used in actively managed/tactical allocation portfolios, but that’s all based on being able to predict when to own them. If you really believe that you or anyone else can do that, you’re being quite inconsistent in your investment philosophy.”

    David F. Swensen, who has managed Yale’s endowment, does recommend commodities as a portion of a portfolio for individuals in his book, published in 2005.
    What academic or other sources to you refer to when you advise against them based on the passive/active and non-timing/timing distinctions that interest DFA investors?

    Thank you very much for all your intelligent discussions.
    Are you an advisor? You may have revealed the answer to this question before, but I do not recall.


  236. Jane,

    I don’t believe David Swensen recommends commodities for retail investors. See here


    For the Yale Endowment, he does hold “commodities” as Real Assets. He holds timber farm for instance, which is very different from commodity futures. Keep in mind commodity futures are a zero sum game.

    I wrote a few posts on the subject of commodities on Morningstar that are hotly debated. If you care to read, here is the link:


  237. Despite all the efforts of Yale, Harvard and most Universities, they would have been better off closing down the expensive investment departments and just buying a very well designed portfolio of passively managed funds.

    I suspect that the fully burdened costs of their university investment management departments (MIS, real estate, benefits, etc) are not included in their reported returns. Look at these to charts based on returns reported in two different articles:


    Scroll up and down this informative page. In a large study of Institutional Consultants, the managers consultants fired beat the managers they hired over the next 3 years!

    Somebody please stop this nonsense. NO MORE ACTIVE FUNDS! 🙂

  238. Michael Zhuang says


    Have you heard of the Grossman-Stiglitz Paradox. It goes like this: If the market is efficient, then we should all be in index funds or like you said NO MORE Active Funds, but if there is no active funds – nobody do stock research, nobody try to bring new information to the market – how could the market be efficient?

    There is also much academic research that shows Ivy Leagues Endowments have superior investment skills not to be sneered at.

  239. Structure says

    Thanks, Jane. I’m glad that I can provide some useful information.

    Finally, an interesting and intelligent question and Michael and Mark beat me to it! They also hit the proverbial nail on the head.

    Ken French has probably been one of the most vocal about how commodities have no place in portfolios. Jeremy Siegel seems to agree. The best study that I’ve seen was done by Truman Clark at DFA, but it’s not publicly available as far as I know. I’ve done the work myself using various commodity indices and MVO and my own conclusions align with Clark’s.

    I have some experience in managing large portfolios. You can learn a lot from some of the advisors that participate here – Greg, Mark, Michael, and Derek have made very good points. I’m just amazed by how much misinformation about DFA exists and how little many people understand about selecting an advisor and/or constructing a portfolio, yet they seem to want to argue with people who do it for a living.

  240. thanks folks for such good prompt answers and links.

  241. Michael wrote:

    “Have you heard of the Grossman-Stiglitz Paradox. It goes like this: If the market is efficient, then we should all be in index funds or like you said NO MORE Active Funds, but if there is no active funds – nobody do stock research, nobody try to bring new information to the market – how could the market be efficient?”

    Michael, fortunately for us, there are plenty of active funds, so that paradox is only hypothetical. There are surely many blogs that should be called “____ Funds: The Trabant of Active Funds.”

    The classic comparison of West German versus East German engineering

  242. Michael,

    I have not read the research you referred to about University Endowments, but these studies rarely used high quality benchmarks I compared to in my links. And look at this data from NACUBO and our comparisons: http://www.ifa.com/12steps/step5/step5page2.asp#f5L This is no alpha, just let it go.

    On your other questions, we have a section in our FAQs on this::

    If everyone followed an indexing strategy would markets still be efficient?

    From the comments of Rex Sinquefield on this question (see video here: http://www.ifa.com/faq/index.asp#f1 ):

    This question has come up repeatedly ever since indexed strategies first appeared in the mid 1970s. Critics of indexing assert that markets would be less efficient if all investors adopted a market-fund investment approach. One can accept this theoretical viewpoint and still embrace indexing with enthusiasm.

    If the adoption of indexed strategies became so pervasive that market efficiency were impaired, it would be a self-correcting process. Mispriced securities would create opportunities for investors to earn profits in excess of their research costs, and their activity would drive prices back to equilibrium levels. We will never know how much information and liquidity are required for an efficient market. Markets for consumer durables such as homes or autos appear to be at least reasonably efficient, despite very poor liquidity, high search costs, and the absence of perfectly fungible assets. This behavior suggests a shift to passive investing would have to be very pronounced to have any effect on market efficiency.

    Even if all professional investment managers adopted a passive approach, other market participants would continue to provide price-setting information. Sources of such information could include corporate stock buybacks, acquisitions, and the investment activities of officers, employees, competitors, and suppliers.

    Despite the impressive commercial success of indexed investing strategies over the last twenty-five years, they still represent only a fraction of total stock market wealth.

    I just like to say, “until they dynamite Las Vegas, you don’t have to worry about everybody indexing.” Besides, the CEO of Barclays once estimated that 70% to 80% of the market could be passive and we would still be fine, see here: http://www.ifa.com/library/Support/Articles/Popular/BarclaysGlobalInvestorsPredicts.asp

    I really don’t think we will get rid of active funds, but I can encourage investors not to waste their time trying to find the next winner and waste their on money the eternal hope of beating the market.

  243. Also on the issue of the Grossman-Stiglitz Paradox, Fama stated in this paper “Disagreement, Tastes, and Asset Pricing” Journal of Financial Economics (March 2007), “And the world is a better place (prices are more rational) when misinformed investors admit their ignorance and switch to a passive market portfolio strategy.”

    Investors need to acknowledge that the market knows best. The best assumption is that the price is right. See this explanation as to why prices change: http://www.ifa.com/section/WhyPricesChange.asp

  244. Hi, I am new to this site. I am considering hiring IFA to invest me in a portfolio of DFA funds instead of investing in Vanguard funds myself. But they want to charge me .75% per year (plus the DFA fund expense ratios) coming to about 1% a year for 2 million dollars. Does that seem too expensive and should I try and negotiate with them?
    Thanking you.

  245. @John (3/25/10), you should set up a free second e-mail account whose address you can then list here so that we can individually – and privately – e-mail you our thoughts. Advisors read this blog, and some of us don’t want to say bad things about them publicly. Use Yahoo, for example, to set up a @yahoo.com e-mail address, and come back to us and list that e-mail address here. You will get more responses that way.

  246. PS: I’m not sure about this, but anyone who would like to answer me privately can email me at johnsinger56@hotmail.com off of this forum if that’s ok.
    Thank you

  247. How can I buy a DFA fund in Spain?

  248. Michael George says

    We have clients in London who purchase DFA funds in their Charles Schwab account. I don’t see why a resident of Spain would not be able to establish a Schwab Account and then purchase DFA funds.
    Check with Schwab about opening an account. They have an office in London. Or call San Francisco HQ at 415-667-5009.

  249. Hello folks,

    Long time reader of this Blog. I have a portfolio of 40% stocks, 60% bonds of different stocks and bond funds. I am 63 and recently retired. My current advisor is recommending purchasing from a cash account I have i.e (CDs) an immediate life time return type MetLife annuity with about a 5.75% return.The purchase amount would be about 25% of my portfolio. I have looked around at alot of portfolio examples fitting my situation and have not seen portfolios with annunities as one of the components. Can the blog readers provide some guidence about using annunities in porfolios, or similar guaranteed income products.

  250. Michael Zhuang, personal CFO says


    There are two types of annuity: immediate and deferred. Immediate annuity is a contract between you and the insurance company by which you pay them a lump sum and in exchange you will get a monthly payment until you pass away. This is a product to hedge longevity risk (the risk of outliving your assets.)

    Deferred annuity on the other hand is primarily a tool insurance companies use to gather assets. You “invest” your money with the insurance company, your “investment” is locked for X number of years during which this is a huge penalty to take the money out.

    Selling these products is very lucrative for financial advisors. The longer the lock, the more lucrative. If your annuity has a lock period of 10 years, your advisor is likely to pocket 10% commissions.

    As to the 5.75% fixed rate, you have to read the fine print carefully. Annuity is not a security regulated by SEC. The term is based on the private contract written by none other than the insurance company itself. If you read carefully, you will uncover interesting fine print such as the insurance company reserves the right to change the rate or fixed interest rate for 2010 etc. I can assure you, there are clauses in the contract to give the insurance company the right to change the rate.

    Now, the product may still make sense for you – I don’t really know your personal situation, so that above is not a personal advice – however, you need to read the whole contract carefully including the fine print and you need to be aware there is a great potential for conflict of interest between your advisor and your for this type of products.

  251. I cannot see the advantage of DFA over Vanguard index funds or Vanguard ETF’s. But if I were to move my money over to DFA, I would not use an advisor who charges more than 25 basis points annually. There are some very good advisors in this price range out there who have access to DFA funds. Just my opinion.

  252. From the Morningstar study: http://www.ifa.com/Media/Images/PDF%20files/Morningstar-IndexingGoesHollywood.pdf

    “Consider the success Dimensional Fund Advisors (DFA) has had in selling its funds through advisors who undergo training on the merits of passive investing and in portfolio construction theory. Consider that over the past decade the dollar-weighted return of all index funds was just 82% of the time-weighted return investors could have gotten with those funds. Yet, the figures for DFA are much better. In fact, the dollar-weighted returns of DFA funds over the past 10 years are actually higher than their time-weighted returns [see Table 1-3]. Suggesting advisors who use DFA encourage very smart behavior among their clients, even buying more out-of-favor segments of the market and riding them up, rather than buying at the peak and riding the trend down, which is usually the case with fund investors.”


  253. Michael Zhuang says


    DFA funds do have some advantages over Vanguard

    But if you just want to have the lowest cost access to DFA funds, you should go with Evanson Asset Mgmt or Portfolio Solutions.

  254. Michael,
    Thanks for your response. The annunity is an immediate annuity from MetLife. Good point on the possibility of a rate change. The way it was presented to me it was a fixed dollar amount ie, $1000 monthly to me or spouse until death. I will ask to see the contract.

    Anyone on the blog have annuities as part of their portfolio they could share on the blog.

  255. Michael Zhuang says


    Knowing that it is an immediate annuity, I feel a lot better already.

    However, I think it is better to consider immediate annuity in yours 70s. Since an immediate annuity is a longevity insurance. In your 63, you are still young to worry about longevity risk.

    When you try to hedge longevity risk too early, you expose yourself to inflation risk. $1000 may sound like alot now, but 30 years later when you are 93, that probably wouldn’t be enough to pay for your utility bills.

    Again, take this as my opinion, not my personal advice since I know very little about you.

  256. Michael Zhuang says


    My friend Mike Piper wrote a post about Single Premium Immediate Annuity in his blog. His blog post drew comments from some good financial planners.

    You may want to put your question to him as well


  257. Fabian (and others),

    1. Fabian, I trust you are asking this question on the Vanguard Bogleheads forum too. Many more readers there: http://www.bogleheads.org/forum/index.php

    2. Fabian, I don’t know a lot about annuities, but if I’m not mistaken, you lose the principal when you die. You also will have a fairly high expense ratio and might have to pay a load fee. Why not just invest that 25% of your portfolio in a Vanguard balanced fund (ie, growth and income) and treat it like an annuity by taking out each year either a fixed dollar amount of fixed percentage each year? If it’s a tax-free annuity, maybe you can do this with a Roth IRA account if you have one.)

    This way, you get to keep the principal when you pass away. People or charities could benefit from that 25% of your portfolio!! Just like some people I know who act as their own fire or long-term health-care insurer (setting aside the equivalent of premiums each month in a separate account but still under their name), you may want to act as your own annuity manager.

    3. In addition to Evanson and Portfolio Solutions for well-priced DFA advisers, I strongly suggest that people consider Derek Tinnin at Purpose Wealth Management (http://www.purposewealthmanagement.com). His fees are a minimum of $1000 per year and from there are 25 basis points per year. He capped his fees at 6K, so if you give him a $10m account, your fees are still only $6K. After making myself available publicly on this blog and on Bogleheads to people trying to find an adviser (since I was once one of them), I have fielded phone calls from about 2 dozen phone calls over the last two years and explained my advisor-selection rationale to each one. Usually I would give about 60 minutes to each person for free, but I no longer want to do this.

    With both Evanson and Ferri, there is a strong chance you will be given to one of their associates, whom I spoke with (with each firm) and deemed not as capable as the firm principals. Then with Evanson, you will be in the minority if you don’t want commodities and gold in your portfolio. He’ll accommodate you and he’s very nice about it, but you’ll be in the minority. Who wants to have an adviser whose philosophy is not perfectly aligned with their own? With Ferri, you’ll have no say over the asset choices, and I felt there was too much risk in the bonds they chose (EM bonds, corp bonds, and long-term bonds). The return-risk ratio is much more favorable on the stock side, and then you can lower your overall risk ratio with high-quality short-term bonds; I didn’t want to haggle with them over each asset choice.

    With Derek, you get to work directly with him, you get to have a lot of say in the investment choices (though he may disagree with you, he’s quite cordial), and he doesn’t sound overwhelmed as a sole advisor as some people have said about a certain advisor in Southern California (CP). Also, he’s not a slick sales-oriented guy who talks really fast and who sounds like he’s trying to sell you a used car, like another certain advisor that people know – I have to be general here.

    And if you want commodities or gold bricks, Derek will talk to you about the correlation with EM stocks and how the latter will actually give you some real return, unlike the former. Once the gold prices cool off, I might also talk to him about a little bit of a Vanguard precious-metals or energy sector index fund (just to add some diversification without losing too much real return).

  258. Michael,

    Thanks for your reference to the following article I will check it out.

    My friend Mike Piper wrote a post about Single Premium Immediate Annuity in his blog. His blog post drew comments from some good financial planners.

    You may want to put your question to him as well

  259. Mills,
    Thanks for your response. I will submit to Boggelheads. Also I am interested the Vanguard funds you mentioned. Do you have the ticker code for them. I like your idea of being my own annuity manager. I guess the differentiater is guaranteed income and lost principle vs ungareented income and retaining principle, “based market performance”.

    The logic behind my large company advisor’s recommendation is that with the market being so volatile over of the last few years resulting in big hits to all portfolios, and having a bigger impact on retirees or soon to be retirees. This is one option of a guarannteed income stream within the portfolio regardless of how the market is performing. I have not seen alot positive information in reference to the annuities and that is what is leading me to my questions from the readers/retirees of this forum. This is an immediate guaranteed annuity which appears to have a better record than the varible annuities. “Guarnteed” payment (aprox. 5.5%-6.5% based interest rates) until death and continues to spouse. This could be for 1 year or 50 yrs. They are playing the insurance mortality odds. As I understand there are no fees ie you turn over $100k and get a guaranteed return. The insurance company is betting they can a get better return on the $100k than the 5.5% or that you die early and they get the principle.

  260. Mills/Readers,

    I did present my question on using SPIAs in my retirement portfolio to the Boggelheads forum. I got alot of information back on annuities and a different approach to Social Security which I would like to share with this forum. I planned to take SS now at 63 along with an annuity and withdrawals from my IRA. Some suggestions from Boggleheads was to use the money for the annunity ($225K) as a yearly income stream for the 7 yrs to 70 and then start SS. The SS at 63 was $1771 and $2907 at 70 monthly. Either way the $225 gets spent either for the annunity or as yearly income. The annunity pays a yearly rate without yearly increases i.e $1000 until death or hold off for SS at 70 with a 3% cost of living increase. The logic was to wait for the max SS rate with 3% COLA vs the annuntiy.
    I would like to get the feedback on this approach from the readers of this forum.

  261. Fabian,

    I’m glad you found the Bogleheads forum to be useful. You might get some interesting responses here, but you will get more readers for your questions there. And keep up the diligence in asking your questions to multiple forums. Splitting hairs in asking the questions can get nauseating, but then you can look back later and know that you did the best you could at the time, even if it proves to be the wrong choice down the road. The fatigue of this information-seeking process will be worth it.

    Unfortunately your last message was far over my head, but I hope someone else here can answer it. Good luck! – Mills

  262. Mills, in your previous response which I copied below you mentioned investing in a Vanguard balanced fund as an annuity. Could you provide the ticker for the Vanguard fund you mentioned.

    Why not just invest that 25% of your portfolio in a Vanguard balanced fund (ie, growth and income) and treat it like an annuity by taking out each year either a fixed dollar amount of fixed percentage each year? If it’s a tax-free annuity, maybe you can do this with a Roth IRA account if you have one.)

  263. Fabian, I didn’t have one particular fund in mind. Ask the Bogleheads folks for a recommendation. But here’s the list: https://personal.vanguard.com/us/FundsByObjectiveDetail?category=Balanced

  264. You get what you pay for. But with the low fees associated with DFA Funds, the advisor fees offset it. I invested 650,000 a few years ago and it’s now worth 950,000 (October, 2010). At one point, it was up to 1.1 mill. And, I took out $50,000 for a property investment. It’s since dropped because of the financial crisis in Europe, but who cares. Not bad for a few years huh. Check out Greenburg and Graham in Irvine, CA or Larry Swedroe. Both are DFA qualified advisors. Don’t waste your time with no load mutual funds, they have backend fees and very expensive. Cheers.

  265. To Bill who says he made $300K in a “few years” by investing in DFA Funds. I find this very hard to believe with the way the market has gone in the past decade which has been a lost one for stocks, with the Standard & Poor’s 500 index posting total returns of just 4 percent since the beginning of 2000. So I think Bill is probably blowing smoke when he says “not bad for a few years huh”. Again I ask what is a few years?

  266. To see the “lost decade” of the S&P 500 compared to various portfolios of DFA funds, see here: http://www.ifa.com/12steps/step9/step9page3.asp#lostdecade

    Happy New Year, mark

  267. Mark,

    You never fail to include a link back to your own website. Must be a lot of work driving cold traffic to your website. You never get any warm referrals from your 3000 clients?

  268. Hi Victor, We hear this all the time,

    “I find this very hard to believe with the way the market has gone in the past decade which has been a lost one for stocks, with the Standard & Poor’s 500 index posting total returns of just 4 percent since the beginning of 2000.”

    So we created a chart to explain what happened in a more diversified portfolio. My teaam works very hard to have the best investment charts on the web. If I have a chart that helps answer Bill’s question, I am going to show him the answer. To answer your questions, we get lots of referrals.

  269. True_North says

    I’ve been using DFA funds for 6 years now, part of a fee-only portfolio of DFA and all other items including fixed income product at fee structure of 1%.

    My DFA positions are Canadian Core equity and US Vector Equity.

    Just looking at the 5 year results DFA performs worse to the Russell Indices.

    I’m really thinking of pulling out of this advisor and DFA and to my own index portfolio, despite good chunk of my fee is tax-deductible.

  270. True_North,

    Why are you paying a fee structure that high? Many advisors charge a flat advisory fee of $3K or an AUM of 25 bps (.25%). This doesn’t include the DFA expense ratios, but the average fee will come out to around 60bps (.6%).

    And give an equity fund 7 years before you pull the plug, at least.

  271. True_North says


    well my fee amounts to that much, at my current portfolio level. You know of any advisorsin the GTA area?

    You can contact me at cycle2day @gmail.com

  272. For those people who want to contact me, I’m just going to direct you to a Bogleheads thread where I tried to explain my full reasoning in picking Derek Tinnin (at Purpose Wealth Management) over the other options. Everything that I have said to the several dozen people whom I’ve already talked to on the phone from this blog (usually silent readers) has been put into written words on this Bogleheads page for you to read: http://www.bogleheads.org/forum/viewtopic.php?f=1&t=95377 . I’m trying to extract myself from future conversations so I can focus on other stuff. Good luck. – Mills

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