What Are Dimensional Funds?
Investing can be a daunting task, especially with an endless stream of new options and pieces of advice that try to shape your portfolio. But what if you could simplify the process by following a tried-and-true approach with experienced professionals?
In this article, you’re going to be exposed to Dimensional Funds. You’ll learn how these investments differentiate themselves from others, the philosophy behind them, and how you can leverage their strategy within your own portfolio.
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What Are Dimensional Funds?
Dimensional Funds are mutual funds and exchange-traded funds (ETFs) that are based on the Dimensional Fund Advisors (DFA) investment philosophy. These funds are known for their lower cost and tax-efficient design that focuses on capturing the returns of diversified market segments rather than trying to outperform, or time the market.
DFA Investment Philosophy
Dimensional Fund Advisors (DFA) is an investment management firm with a reputation for investing with an evidence-based approach. The DFA investment philosophy is backed by academic research and rests upon key guiding principles that include:
Market Efficiency: DFA believes that markets are efficient, which means that prices reflect all available information about a given company’s financial position, management quality, growth potential, and other value-indicating factors. This implies that trying to beat the market by picking individual stocks or timing investments is incredibly difficult.
Systematic and Diversified Investing: Rather than attempting to select superior stocks or time the market, DFA’s approach is systematic and captures returns from diversified market segments. Securities are selected based on factors like size, industry, and asset classes that have been associated with higher long-term returns.
Cost Efficiency: DFA’s track record shows they know costs matter in investing, and that they seek to minimize them through passive management and other cost-saving measures (e.g. no commissions, diversification, and tax efficiency). By minimizing costs, DFA aims to help investors keep more of their returns.
Who Owns Dimensional Funds Advisors?
Dimensional Fund Advisors is a private investment firm owned by employees, members of its board, and outside investors. Though headquartered in the United States, the company has several international affiliates operating out of foreign countries such as Germany, Japan, and the United Kingdom.
Can I Buy Dimensional Funds Without an Advisor?
Dimensional Funds can’t be bought by just anyone. The company operates through a select network of approved institutional investors and financial advisors. At Fischer Investment Strategies, we take pride in being one of the few fee-only advisory firms able to grant our clients access to the firm’s premium investments.
Dimensional Funds vs Vanguard
Dimensional Fund Advisors (DFA) and Vanguard are both well-known investment management firms that offer a range of mutual funds and ETFs. While there are some similarities between the two, there are also some key differences that include:
Investment Philosophy: One of the biggest differences between DFA and Vanguard lies in their underlying investment philosophy. DFA’s philosophy centers around capturing returns of different market segments utilizing a systematized and diversified approach, which lends itself to focusing on small-cap and value stock opportunities. Vanguard, on the other hand, is more known for its index-based approach to investing which primarily seeks to replicate the returns of a given benchmark index (ex: S&P 500).
Allocation: DFA portfolios can tend to lean more towards value and small-cap companies compared to an alternative Vanguard fund.
Access: DFA’s funds are only available through approved avenues which include financial advisors and institutional investors. However, Vanguard’s funds are available to anyone and can be accessed through one’s own brokerage account.
Minimum Investment: DFA’s funds can have higher minimum investment requirements compared to Vanguard’s funds.
Overall, both DFA and Vanguard offer a range of high-quality investment options that can be suitable for different types of investors. Ultimately, it’s a choice that may depend on factors such as investment philosophy, minimum investment requirements, and access to the right financial advisor.
How You Can Get Started With Dimensional Funds
At Fischer Investment Strategies, we understand how difficult it can be trying to find the investments right for you. But Dimensional Funds can make things easier. These investments are grounded in plenty of research, and an investment philosophy that’s committed to putting evidence first in pursuit of higher long-term returns.
As a DFA-approved fee-only firm, we’re able to grant you access to a range of premium mutual funds and ETFs that can help you achieve your investment objectives. Additionally, by working with an experienced advisor, you’re also able to benefit from personalized advice that’s tailored to your unique situation and financial goals.
If you’re ready to get started using Dimensional Funds or want to learn more about the investment opportunity, please don’t hesitate to reach out. You can call us directly at our Westlake office at (805) 418-7686, or our San Clemente office at (949) 433-7768. Feel free to also schedule a complimentary consultation at a time that works best for you.
This commentary reflects the personal opinions, viewpoints and analyses of the Fischer Investment Strategies, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Fischer Investment Strategies, LLC or performance returns of any Fischer Investment Strategies, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Fischer Investment Strategies, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Ted Fischer is a Fee-Only Certified Financial Planner® & fiduciary, and the founder of Fischer Investment Strategies.
Drawing from more than 25 years of experience in the financial services industry, Ted's expertise includes retirement planning, investment analysis, tax planning, estate planning, and insurance.
Ted has an extensive academic background. He received his Certified Financial Planning (CFP®) designation from UCLA in 2011. He became a Qualified Plan Financial Consultant (QPFC®) and an Accredited Investment Fiduciary (AIF®). Ted has a Bachelor of Science in Marketing, with a minor in Finance, from San Diego State University.