For over five years, this website has warned readers to avoid DFA funds and invest in Vanguard instead. We’ve pointed out the relatively high fees, poor performance, high risk, lower diversification, and less tax efficient nature of DFA versus Vanguard.
Hopefully you were paying attention in 2018, and dumped your DFA holdings before 2019 began – because failing to switch would have cost you a large amount of money.
Let’s look at the results for 2019. We’ll compare three funds:
|Vanguard Total US Market||VTSAX||Total US stock market, market cap weighted.|
|DFA Vector Equity||DFVEX||Total US stock market, small/value weighted.|
|DFA Small Value||DFSVX||Small/value stocks only.|
And here are the 2019 results:
The Vanguard fund rose 30.4% in 2019, the Vector Equity fund 25.7%, and the small value fund 17.8%. (this site measures returns through Dec 30, since that’s the date DFA’s Vector Equity and other total US stock market funds were created). Looked at another way, here are the gains on a $500k investment in each fund in 2019:
That’s a stunning difference when you consider all three funds track the same asset class (stocks) in the same country. This, year, I’ve given DFA a break and not tacked on the 1% fee most investors have to pay their friendly DFA advisors for the privilege of owning these “elite” funds.
Note that the DFA Small Value fund isn’t directly comparable to the Vanguard fund, since it doesn’t cover the entire stock market. But DFVEX, which is a total US Stock market fund, is.
Critics will note that this is just one year – too short a period to draw any conclusions about the superiority of one fund versus another. And so, once again, let’s show the complete, 14 year history of Vanguard vs DFA, since the DFA fund’s inception in 2005:
Vanguard’s experienced 248.2% growth, versus 187.8% for DFA. Happy birthday, DFVEX. Here’s how that looks in dollar terms (once again I’ve assumed no DFA advisor fee):
To be clear, the Vanguard fund simply represents all stocks in the US market, weighted by the size of each company. Investors pay DFA to outperform that passive index.
Once again this year, DFA company owners and their network of salespeople made a lot of money. And, once again, DFA investors underperformed.
A new year is upon us. Which company will you choose in 2020?