Our Favorite Funds

There are only two large mutual fund families you should consider for your portfolio:

One, Vanguard. If you are a do-it-yourselfer (which means you have great emotional restraint), Vanguard offers the only decent assortment of low-cost index funds to the individual investor. Don't expect Vanguard's index offerings to ever outperform the market. Vanguard's index funds are "the market" (or at least the ones they choose to emulate) minus expenses.

Two, Dimensional Fund Advisors. DFA is not available to unguided investors (because of those nasty emotions that plague most of us). Their mutual funds operate in a similar fashion to index funds, but they "enhance" the  overall market by applying scientific research that has shown that certain types of stocks have consistently outperformed other types. I call the "duh" factors, because the just make sense. For example, small companies have outperformed big ones (duh; they have room to grow and can take more chances) and value stocks (those with undervalued "assets" - duh),  have had a tendency to beat growth stocks (channeling Benjamin Graham via Warren Buffet). Here's another shocker; more profitable companies have appreciated faster than those who make less. Go figure.

Instead of picking stocks like an "active" fund manager, DFA applies screens to the total global stock market to overemphasize these "dimensions" of added risk and historic returns. It's a complicated process that requires expert help to properly implement and maintain. In August, Beverly Goodman of Barron's explained "The firm’s approach isn’t easy to understand. That’s why it refuses to sell directly to individual investors—DFA wants its philosophy properly explained by the advisors that sell their funds."

You can read the entire article here.

To help Goodman better understand the incredible lengths Dimensional goes to to educate it's very select group of fee-only investment advisors, she was recently the first journalist invited to attend DFA's intense two-day educational immersion into the science of Dimensional called "The College."

Her subsequent article (published January 4th, 2014 - subscription may be required) explained the Dimensional story better than anyone has to date. It should be required reading for anyone who is serious about investing.

After you have read the article you will better understand why DFA offers most of our favorite funds.

Barron's article "Where the Smart Money is Headed" by Beverly Goodman - published 8/5/13

Barron's Cover Story "A Different Dimension" by Beverly Goodman - published 1/4/14 - subscription may be required