The Dimensional Fund Advisors Versus Vanguard Battle

 

There’s no longer an argument that index funds beat actively managed funds. 

But there remains a battle between two types of index funds.  DFA (Dimensional Fund Advisors) claim to reign supreme. 

They tilt their portfolios towards small cap and value cap.  They also claim to have a superior way of trading.

But when comparing DFA’s funds to Vanguard’s index funds (in an apples-to-apples test) I found that Vanguard won. I first wrote about that here, testing DFA’s funds against their Vanguard equivalents. 

I’ve since updated that comparison. 

Here’s Portfolio 1, Comprising DFA’s Funds

 

Here’s Portfolio 2:  Vanguard’s Equivalents

 

 

Using Portfoliovisualizer.com, I compared results from January 2007 until April 30, 2018.

As you can see below, Vanguard’s Portfolio (Portfolio #2) won once again.  It averaged a compound annual return of 6.67 percent. 

In contrast, DFA’s equivalent funds managed a compound annual return of 6.63 percent. 

The race was close.  But Vanguard did win.

What’s more, Vanguard’s equivalent funds recorded a standard deviation of just 16.95%. 

Standard deviation is a measure of volatility.  The lower the better.

DFA’s equivalent was more volatile, recording a standard deviation of 18.07%.

I love DFA’s funds.  But in an apple- to-apples (factor to factor) test against their Vanguard’s equivalents, they’re a step behind their promise.

 

January 1, 2007 – April 30, 2018

Portfolio 1= Dimensional Fund Advisors (DFA)

Portfolio 2= Vanguard’s indexes 

 

 


worlds best value financial advisor

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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2 Responses

  1. Mark says:

    Andrew,

    I read your book for expatriate investing and am at a standstill regarding my investment options. I reside in the US and have a large chunk of $ sitting in a chequing account. In chapter 16, you mention avoiding US domiciled stocks and ETFs due to the estate taxes. Maybe I am not as concerned about this as I should be – I’m 32, not married, no children -because I recently opened a Vanguard US brokerage account with plans to start my investing journey. I am having second thoughts as to whether I am doing the right thing. Would I be better off looking into another account like Canadian based TD Waterhouse (I’m assuming that would not affect my residency status), an offshore account (would I benefit from this being a US resident?), or should I stick with US Vanguard. I may stay in the US long term should the opportunity allow for it. If I do stay long term, would that influence what account I should open?

    Regards,
    Mark


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