What are DFA Funds?

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<h1>What are DFA Funds?</h1><strong> Author: <a href='http://www.articleseen.com/profile_Mr William Hauselberg.aspx'>Mr William Hauselberg</a></strong><br /><p>The Dimensional Fund Advisers (DFA) have created mutual funds based on the results of intense academic research. Graduate schools of business, like the University of Chicago, are centers for the development of investment strategies for this innovative fund. DFA mutual funds are exclusive in permitting only certain disciplined investors who adhere to their investment philosophy. Challenging Conventional Economic Theory DFA funds adhere to a long-term passive investing strategy. They have been developed by a unique group of economic scholars. Many investment strategies are similar to scientific theories. They are developed and used until they no longer serve a purpose or are invalidated by a new reality. The DFA portfolio managers have used this scientific methodology to develop their DFA funds. They have carefully assembled data to conclude that some conventional trading strategies are flawed. Specifically - high volume trades, get rich quick schemes and "efficient market theory" - are debunked by DFA scholars. According to "http://www.dfaus.com/library/reprints/cnbc_msn/", the DFA index portfolio managers have conducted research into the success of asset classes historically. They have accumulated an impressive database used to select the best assets for more than 30 different portfolios matching investor risk\reward parameters. Traditionally, fundamental theory and technical analysis have been the primary tools for researching the viability of a financial investment. The scholars running DFA mutual funds believe that imperfect information invalidates fundamental theory. Moreover, most price movements are random and irrational according to the DFA scholars. DFA funds adhere to a careful initial selection and long-term asset holding strategy to avoid high transaction costs. The following assumptions are the basis for DFA fund investment: • Small stocks outperform large stocks • Value stocks outperform growth stocks • Equities outperform bonds Careful Selection Process According to this article, "http://www.nytimes.com/2011/01/29/your-money/29money.html?pagewanted=all&_r=0", there is a careful selection process for both the assets and investors by DFA. The assets are chosen for long-term holding. These are not linked to any external index. External index linkage can be expensive when indexes are modified. The investor must be approved by the DFA managers. Discipline is a necessity. The core of DFA mutual funds theory is the "Passive Investing Strategy." While day traders may try to engage in numerous trades to generate profits, the DFA portfolio managers believe that it takes time to accumulate profits. Like a good wine or a carefully built structure, slow-and-steady process is necessary for wealth growth. This careful selection process has established a premium for DFA funds. These investments must be purchased through financial advisers. If an investor passes the approval process, he must attend a two-day introductory meeting. The portfolio is customized to the investor's needs. Many investors have developed an extremely "risk averse short-term investment strategy" worried about small price declines. The DFA index portfolio managers look for investors who have the discipline to stay committed to the DFA ideology. Very few individuals can truly "time" investments perfectly. DFA eschews the temptation to make profits by timing purchases to anticipate future movements. The DFA funds are passive, concentrating on the long term and statistically-based. This tends to reduce management fees also. Diversification of asset classes is a key element of the DFA funds. A variety of asset classes can weather market volatility more effectively. The DFA index portfolio managers have a very sober and realistic view of investing noting that most fund managers cannot perfectly time purchases or avoid short-term declines. The DFA fund is a "passive investment vehicle" made for the patient "buy-and-hold" crowd.</p><strong>About the Author:</strong><br />The author has an immense knowledge on <a rel="nofollow" href="http://www.dinuzzo.com/team-member/wealth-managers-4">DFA index portfolio managers</a>. Know more about <a rel="nofollow" href="http://www.dinuzzo.com/taxonomy/term/22">DFA mutual funds</a> related info in his website.<p> Article Source: <a href='http://www.articleseen.com/Article_What-are-DFA-Funds_243018.aspx'> http://www.articleseen.com/Article_What are DFA Funds?_243018.aspx</a></p>

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Keywords : DFA index portfolio managers, DFA mutual funds,

Category : Business : Business