The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Swat on September 08, 2016, 06:13:42 AM
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Relatively new in the world of investing and have recently moved all my funds to low cost Vanguard index funds. However, I've been reading a little more about DFA and was curious people's perspectives for those who have used it. The recent podcasts that I've listened to seem to state they were superior to Vanguard.
1-Most importantly, do their funds outperform Vanguard? Do they outperform after we consider fees that we pay their advisors?
2-What types of fees do most of their advisors charge, and does it vary amongst advisors or are they mandated to charge a certain %AUM.
3-Is their "advantage" over Vanguard that they place a higher premium on value and small cap funds?
4-Has anybody used them and wouldn't mind sharing a sample portfolio they gave them...ration of Large to small cap, value to growth, domestic to international specifically.
5-Most of my money is in tax advantaged accounts as I'm relatively young, but when does it not make sense to make the switch (considering tax implications with selling).
6-Is the overall impression that beyond just their affiliation with DFA, do the advisors provide quality advice such as estate planning, roth conversions, etc...
Thanks.
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Relatively new in the world of investing and have recently moved all my funds to low cost Vanguard index funds. However, I've been reading a little more about DFA and was curious people's perspectives for those who have used it. The recent podcasts that I've listened to seem to state they were superior to Vanguard.
1-Most importantly, do their funds outperform Vanguard? Do they outperform after we consider fees that we pay their advisors?
2-What types of fees do most of their advisors charge, and does it vary amongst advisors or are they mandated to charge a certain %AUM.
3-Is their "advantage" over Vanguard that they place a higher premium on value and small cap funds?
4-Has anybody used them and wouldn't mind sharing a sample portfolio they gave them...ration of Large to small cap, value to growth, domestic to international specifically.
5-Most of my money is in tax advantaged accounts as I'm relatively young, but when does it not make sense to make the switch (considering tax implications with selling).
6-Is the overall impression that beyond just their affiliation with DFA, do the advisors provide quality advice such as estate planning, roth conversions, etc...
Thanks.
You can read a bit more discussion about this by going here: https://www.bogleheads.com/forum/viewtopic.php?f=1&t=148192 (https://www.bogleheads.com/forum/viewtopic.php?f=1&t=148192)
Brief answers to your specific questions:
1) There's no way to tell going forward which will have higher returns. Both use passive funds with low fees, so really neither would be a "wrong" choice. Historically the DFA funds which focus on smaller, growth companies have had both slightly higher returns and more volatility, which can be both good and bad depending on the investor and the time frame.
2) each has a variety of funds available. Fees at both are low. Look up the individual fund to know what the fees are. For example, Vanguards SP500 Admiral shares fund (VFIAX) has a fee of 0.05%/year
3) in short this is DFA's angle. Always be aware that what's been true in the past won't necessarily be the same in the future.
4)I use Vanguard and have no reservations recommending them (though processing times for transfers are slow). I have looked at DFA but have not invested with them. I might someday, though.
5) Generally speaking put as much as you are allowed in your tax-advantaged accounts each year. Read this thread (http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/) about accessing that money before you turn 59.5.
6) no comment/experience.
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I found this to be helpful:
http://whitecoatinvestor.com/dfa-vs-vanguard/
"What about the entire portfolio? If I made two portfolios using these asset classes, one composed of the DFA funds and one composed of the non-DFA funds, I could figure out what the “DFA advantage” really would be. A priori (just like I chose the asset classes above), I decided my asset allocation would be 15% US Large, 5% US Small, 5% US Small cap value, 5% microcap, 10% international developed, 5% international small, 7.5% emerging markets, 7.5% real estate, 15% TIPS, 10% corporates, and 15% Federal bonds, for a 60/40 portfolio where 37.5% of the equity is international. I then calculated the DFA advantage. I calculated it out to be a MINUS 0.04%, or essentially a tie. That was before any advisory fee, but any advisory fee you add on is going to make the DFA portfolio look even worse."
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I found this to be helpful:
http://whitecoatinvestor.com/dfa-vs-vanguard/
"What about the entire portfolio? If I made two portfolios using these asset classes, one composed of the DFA funds and one composed of the non-DFA funds, I could figure out what the “DFA advantage” really would be. A priori (just like I chose the asset classes above), I decided my asset allocation would be 15% US Large, 5% US Small, 5% US Small cap value, 5% microcap, 10% international developed, 5% international small, 7.5% emerging markets, 7.5% real estate, 15% TIPS, 10% corporates, and 15% Federal bonds, for a 60/40 portfolio where 37.5% of the equity is international. I then calculated the DFA advantage. I calculated it out to be a MINUS 0.04%, or essentially a tie. That was before any advisory fee, but any advisory fee you add on is going to make the DFA portfolio look even worse."
I had the same results when I backtested DFA vs Vanguard. DFA has a good story, but it does not hold up to scrutiny.