Dimensional Fund Advisors is an Austin-based investment firm that has been getting a lot of press in the last few years, with good reason. Their approach to markets – very different from the run-of-the-mill investment company – has won the organization many admirers.
In this blog, we’ll discuss the way Dimensional Fund Advisors go about managing and caring for the money of its members, using a technology-led approach to leverage the knowledge of the market and make their investments grow.
What makes Dimensional Fund Advisors different?
Dimensional Fund Advisors work smarter, not harder.
It was founded and built by David Booth, who constructed the firm’s philosophy around the principal ideas of his mentor at the University of Chicago and Economics Nobel Prize winner, Eugene Fama.
DFA moved away from the traditional investment advertiser’s behavior of forecasting markets and “outguessing” their competitors, to use the information of the market itself as a way to structure their own investment management methodology. It is a method that relies on insights from financial science instead of individual intuition. DFA itself describes its approach like this: “It means we take a less subjective, more systematic approach to invest – an approach we implement consistently and investors can understand and stick with it, even in challenging market environments.”
The company’s performance has proved its approach. According to Denver-based analytics company Lipper, DFA’s stock funds have outperformed 70% of peers.
David Booth is clear about why his way of working is valuable, “The number of managers that can successfully pick stocks are fewer than you’d expect by chance. So why even play that game? You don’t need to.”
Benefits of the DFA system
For investors, Dimensional Fund Advisors system works because it offers a far greater certainty of stock performance than the average investment adviser working from intuition and forecasting alone.+
It’s low cost and long-term
The whole point of the DFA system is to keep costs low while outperforming traditional investment firms following more traditional systems.
The way the company manages to do that is by using a huge network of academic research, real-time data, and market knowledge to inform their approach of waiting for good prices and investing at the right time, rather than joining every wave of investment that comes along.
For investors with money managed by DFA, this keeps annual costs low and steady because it understands there is no quick buck to be made in investing. The reality of a well-managed fund is that it is a low-term investment, not a quick fix.
But this long-term understanding also makes DFA’s system far safer for investors.
Easily identifiable philosophy
Dimensional Fund Advisors’ philosophy is clear for all to see and for those clients who have entrusted their hard-earned money to an adviser who follows the DFA method, the continuity of the method is reassuring to know.
Most people don’t understand the intimate workings of the market; that’s what they pay an investment manager for. But without an investment philosophy that is well-established and clear to see, trust between client and manager will always be difficult to build.
With the DFA philosophy, there is no reason for confusion. It is explainable to all clients and is explicit in how it functions; no hidden practices, no unexplainable market moves.
Qualified and competent advisors
Each and every advisor or firm that employees the DFA methodology is thoroughly checked and vetted prior to their inscription.
Every individual advisor is educated in the DFA system and must attend meetings, workshops, and classes. Firms must meet ethical and due diligence standards before they are even considered for acceptance. Becoming an advisor able to implement the DFA system is a long and difficult process, ensuring only those advisers who share the DFA outlook can successfully pass.
For the client, this is a reassuring measure as it speaks of the firm’s quality. This is about caring for the client, not chasing performance.
To find out how Hamilton Financial Planning can manage your funds safely and securely through the implementation of the Dimensional Fund Managers system, call us now. We’re always happy to hear from you.
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Scott Hamilton is the founder and chief financial officer at Hamilton Financial Planning, a wealth management firm that specializes in providing comprehensive financial planning for retirees in Dallas, Houston, and Austin, Texas. With over 20 years of experience in the financial industry, and has completed over 250 financial plans for retirees across all industries, but mostly the oil and gas industry, Scott is passionate about providing his clients with the tools and insight they need to achieve their financial goals.
He has a Bachelor of Business Administration in finance from Texas State University and an MBA in international finance from Pepperdine University. Scott has also been happily married to his wife, Gayle, for over 25 years. To learn more about Scott, connect with him on LinkedIn.