Dimensional Fund Advisors (DFA) is an investment management company known for its evidence-based approach and long-term investment philosophy. Here is a summary of DFA’s investment philosophy:
DFA believes that financial markets are generally efficient, meaning that prices quickly reflect all available information. As a result, it is difficult to consistently outperform the market through active trading or stock picking.
DFA embraces passive investing, which involves constructing portfolios that closely track broad market indexes rather than trying to outperform them. They offer a range of index funds and ETFs designed to capture the returns of various asset classes.
DFA utilizes a unique investment approach that combines the benefits of passive investing with factors that have been shown to drive higher expected returns. They focus on factors like company size, relative price, and profitability, which have historically been associated with higher long-term returns.
DFA emphasizes the importance of diversification to manage risk. They advocate for holding a broad range of securities across different asset classes and geographies to reduce exposure to any individual company or market.
DFA employs a structured investing methodology, using computer-driven algorithms to determine the composition of their portfolios. This approach ensures consistency and helps minimize emotional decision-making.
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