Q: Do you really believe it makes sense to pay an advisor to manage a portfolio using DFA funds compared to doing it yourself at Vanguard?
A: When I compare how DFA and Vanguard build their equity portfolios, I absolutely believe DFA has an advantage that is greater than the advisor’s fee. Some funds, like the S&P 500 and REITs, have little return advantage at DFA, while others have huge advantages – and not due to luck. For example, for the 15 years ending February 6, 2015, the DFA large cap value fund compounded at 9%, while the Vanguard Value Index compounded at 5.8. In my podcasts and articles about performance I address why those differences happened and why they are likely to continue in the long run.
I have met thousands of investors over the years who do not care if DFA will produce a better return than Vanguard; they refuse to pay a fee to have something done they can do on their own. Plus, the do-it-yourself investor could be right when they say it’s possible that DFA won’t beat Vanguard in the future. By the way, there are a lot of sane investors who think people who take the risk of owning stocks individually or through mutual funds are making a big mistake. They have all their investments in bonds or real estate. And they could be right. The one thing we know for sure is that nobody knows the future.