Why would I use DFA funds? I have never heard of them.
Dimensional Fund Advisor (DFA) is a unique fund complex. It was formed and is run by academics adhering to the most stringent standards of evidence based investing. All DFA funds are passive. The equity funds lean into true value and micro-cap. While nothing is guaranteed, DFA chooses overweight true value and micro cap as there is a statistically meaningful probability of such a strategy beating the market in the future.
I met with a prospective client, a well-known Bay Area attorney, a few days ago. He has been managing his assets with help from various advisors and has passed through the stages of maturity as an investor:
Childhood: What is a stock?
Adolescence: I want stocks that will beat the market!
Younger Adult: I just lost a lot of money in stocks!
Finally he has entered the Full Adult stage of development and is ready to consider evidence based investing.
Evidence based investing does not offer great stories about individual stocks. Evidence based investing does not trying to guess the direction of interest rates, or the growth of certain sectors or economies using macro-economic predictions.
What evidence based investing does is (1) look at what has worked in the past, (2) determine whether the past performance was a fluke or whether it has a statistically meaningful probability of recurring and (3) whether there is a reason that explains why something worked in the past.
Look through literature by the Nobel Prize winners. Read the thoughts of Warren Buffet. The answers are clear. Low cost, broadly diversified passive investments will beat active management every time. Over one year or three years it’s a toss up, but the more you widen the window the more likely passive funds will win out.
You might not have heard of DFA, but the smartest people in the world have. Now my attorney friend and you the reader do as well.