Tired of chasing the latest trends and underperforming the market? Stop speculating. Instead, discover the solution leading the industry now for over 50 years with Dimensional Funds Advisors. Trying to predict which stocks to buy and sell can be frustrating, costly and more importantly, may reduce your returns.
About to say it’s all guess-work, anyway? Guess again. You don’t have to try to pick the best investments or identify which active or index manager will outperform the other. The reason is simple. Capital markets work. Investing is not a zero-sum game where one investor must lose so another can win. Over the long run, markets reward most investors for taking risk and providing capital. Any investor has the chance to capture the same capital market rates of return. Over the long run, markets reward most investors for taking risks and providing capital.
This chart compares the percentage of market return that has been captured by each of the three Fund categories: Active, Index and a hybrid model we’ll call Passive. The Passive Investor model is represented by funds managed by Dimensional Funds Advisors (DFA).
So, how has DFA maintained this track record? In 1958, the University of Chicago Economics department received $300,000 and a Univac computer to use in an attempt to determine true market returns. Many of today’s most prevalent investment methods and measurements stem from this research. Derived from this initial effort, Gene Fama and Ken French determined the 3 factors that drive stock performance (Fama French Three Factor Model). DFA was guided by Fama, French and several other well-respected and lauded economical academia. Their data analysis reshaped portfolios and greatly improved the industry’s understanding of these following items:
- Equity market: Stocks have higher expected returns than fixed income.
- Company size: The stocks of smaller companies have higher expected returns than the stocks of larger companies.
- Company price: Lower-priced value stocks have higher expected returns than higher-priced growth stocks (measured by the ratio of company book value to market equity).
In essence, the multi-decade, highest capture of market returns shown here is based on portfolio engineering through clearly understanding risk dimensions of the entire market and weighting specific areas. Unlike increasingly popular index funds of today.
It’s never to late to make a great decision!
- Dalbar 2012 (January 1992 to December 2011)
- SP500 standard and poor’s (January 1992 to December 2011)
- Dimensional balanced all equity portfolio (January 1992 to December 2011)
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