Having Your Investment Cake and Eating It Too!

When buying a top of the line automobile, you want outstanding performance, reliability, great design and excellent customer service.

When investing, you should want excellent performance, a well designed investment plan, high quality advice and responsive service with attention to details.

To get this top of the line vehicle, it is going to be very expensive. There is a significant performance and luxury difference between a $30,000 car and a vehicle costing $75,000 or more.

With our investment philosophy, you can have outstanding investment performance, but with costs that are far below industry averages. You can get top quality investments at a lower price, without sacrificing anything. You can have your investment cake and eat it too.

Investment costs deserve more attention. Over the long term, the cost differential has a great impact on your long term performance and investment success.

Mutual funds and money managers generally charge at least 1% annually. According to Investopedia.com, “the average equity mutual fund charges around 1.3%-1.5%. You’ll generally pay more for specialty or international funds…”

Because of their outstanding long-term investment performance and philosophy, we recommend mutual funds managed by Dimensional Fund Advisors (DFA). The excellent performance of their funds is partially attributable to the very low expense charges of their funds. The expense ratio of a fund reduces the net return to the client. For example, if a fund had a return before fees of 10%, an expense ratio of 1.5% reduces the net return to 8.5%. If the expense ratio was only .4%, the net return would be 9.6%. We recommend funds with a built in advantage of much lower fund fees. And you receive this benefit every year.

Per Morningstar.com, “low costs also set DFA apart. Because its funds do not track an index, it is not forced to trade when doing so would not be cost-effective. DFA’s low expense ratios build on this structural cost advantage…” DFA has over time consistently reduced the cost of their funds.

DFA’s real estate fund is a good example of this fee advantage. Morningstar commented that “the fund is one of the cheapest in its peer group, where the median expense ratio of a real estate fund is 1.12%. Two years ago, DFA cut the fees on this fund to 0.18% from 0.30%.”

DFA’s top performing funds generally cost .80% – 1.0% below the 2013 mutual fund expense ratio average for each respective category. For example, in the US Small category, the industry average is 1.38%. The DFA Small Cap Value fund has an expense ratio of .52%. Among US Large company funds, the industry average is 1.09% and the fund we recommend charges .09%. DFA’s International Small Cap Value fund is .77% less than the industry average of 1.46%.

So if you desire excellent investment performance with low costs, it turns out you can have your cake and eat it too.


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