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Should you invest your entire portfolio in DFA’s new “fund of funds”?

June 1, 2012 - 1 comment

With the introduction of new balanced funds from Dimensional Fund Advisors (DFA) last year, it begs the question on whether this “one-stop-product” is appropriate for the average investor (for a recent blog on this product, please read Dan Bortolotti’s blog).

From my perspective, advisors who are not even considering this alternative for clients holding only modest sized non-taxable accounts (such as RRSPs and TFSAs) may be doing their clients a disservice, for a number of reasons:

Low-cost, relative to the industry average
For the cost of a single trade, your client would be fully invested in a globally diversified portfolio for a relatively low ongoing cost (1.70% MER compared to the Average Global Neutral Balanced Mutual Fund, at 2.23%) – some fee-based DFA advisors may charge even less. On a $100,000 investment, this would amount to an annually savings of approximately $530.

Ability to contribute monthly at no cost
Mutual funds, unlike most ETFs, have the ability to automatically invest additional amounts as well as reinvest dividends. This can significantly cut down on the trade costs of reinvesting cash into numerous portfolio holdings.

Automatic rebalancing
There is no need for you to rebalance the portfolio – all of this is done (arguably, much more cost effectively) by DFA. You must still ensure that the overall asset allocation is still appropriate, given your client’s unique willingness, ability, and need to take risk.

Investing in balanced funds may help investors avoid “The Behaviour Gap”
Studies have shown that investors in balanced funds stay invested longer (and earn higher returns), relative to investors who jump in and out of asset classes. This benefit cannot be understated.

For our clients in Toronto who hold only registered assets, I would not hesitate to recommend these products as a viable long term portfolio solution. If they hold assets in non-registered accounts, I would be less inclined to construct an “all DFA” portfolio (more on this in a future post).

Sources: Dimensional Fund Advisors, Morningstar PALTrak

By: Justin Bender with 1 comments.
Filed under: Funds
  02/05/2013 3:20:16 PM
Hi Justin,
Are you concerned about global funds of funds portfolios inside taxable accounts because of the tax inefficiency of bonds mutual funds?

With a 100% equity portfolio, would you still not consider the DFA global equity fund inside taxable accounts?

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