Wise Wealth Management

Dennis Covington | Principal

Insights on the keys to enjoying a "healthy wealth".

Why Use So Much DFA?

January 2014

Oftentimes when I am asked what the difference is between Capital Directions and a traditional Wall Street brokerage firm, I will start by drawing the diagram below:

Using this illustration, I point out that the traditional Wall Street firm hires brokers to find clients to whom the firm’s products can be sold. In contrast, the independent, fee-only advisor reverses this hierarchy, working first with clients to understand their goals and then finding the right firms (i.e., investment managers to invest capital, law firms to draft estate documents, etc.) to suit their needs.

One of the hallmarks of the independent approach is that we are free to use any investment vehicle for our clients that we believe will best help them to achieve their goals. And yet, despite the fact that there are thousands of mutual funds, stocks, hedge funds, etc. to choose from, we at Capital Directions often invest a significant portion of our clients’ assets in the funds managed by Dimensional Fund Advisors (DFA).

Why? The short answer is that our investment philosophy guides our investment vehicle selection, and the funds DFA offers fit that philosophy better than the alternatives. Our mantra for investment vehicle selection follows these principles:

• A clearly defined investment objective and a repeatable process to capture the return of the asset class the fund invests in;
• Low management fees;
• Low turnover (trading), which generates lower tax bills for our clients than funds that trade frequently; and,
• A strong belief that markets work

A longer answer can be found in the recent Barron’s article "A Different Dimension". I think you will find it helpful in understanding why we invest both our own money and our clients’ money in the funds of DFA. 

To read the Barron's article, click here.  

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