Investing
Our purpose in managing your money is to not "beat the market," but to design an investment program tailored to your specific needs. We will develop a portfolio with an appropriate level of market risk to support your goals while minimizing volatility and reducing the probability of large losses.
We employ a passive, asset-allocation approach to investing, guided by the following principles:
Markets are “Efficient.”
Security prices continually reflect all available information. Active portfolio management cannot beat the market over time, especially when expenses and taxes are taken into account.
Diversification is Key.
Concentrated investments add risk with no additional expected return. A diversified portfolio with multiple "uncorrelated" asset classes should provide needed returns with the lowest possible amount of volatility. The secret to long-term investing is to avoid serious losses.
Risk and Return are Related.
Exposure to meaningful risk factors determines expected portfolio return. Specific sources of investment risk include small capitalization stocks, foreign stocks, value stocks, real estate securities, and commodities.
Portfolio Structure Explains Performance.
Asset allocation along size, value, and market exposure dimensions primarily determines the results of a broadly diversified portfolio. Selection of specific securities is less important than the original allocation decision.
Articles of Interest
"A Dying Banker's Last Instructions" NY Times
"The Cocktail Party Fallacy"
Eugene Fama, Jr.
An Interview with Eugene FamaUniversity of Chicago
"Can You Get Past the Bouncer?" - Forbes
"DFA Funds - Hard to Buy, Easy to Own"
"Reading the Index to Beat the Index" - NY Times
"New Ways to Sign on with the Pros"
Safe Harbor Financial Planning is one of a select number of advisory firms offering the family of no-load mutual funds from Dimensional Fund Advisors (DFA) of Santa Monica, CA.
Dimensional's strategies have added returns over comparable indexes for more than 20 years. The return premiums come from structure and execution, not active stock selection.
- The funds capture stronger exposure to the factors that drive returns for each asset class (e.g. large US stocks, small US stocks, large international stocks, short-term bonds, etc.)
- Transaction costs are minimized and returns enhanced through trading and execution
- Tax-managed strategies offer consistent asset class exposure with a special emphasis on maximizing after-tax returns.
Dimensional Fund Advisors
Dimensional Fund Advisors was founded in 1981 by David Booth and Rex Sinquefield to apply academic research on capital market behavior to the practical world of managing investment portfolios. The firm maintains close links with the University of Chicago and other research centers for financial economics. Board members and consultants include some of the nation’s most distinguished academic theorists, including Eugene Fama, Kenneth French, Roger Ibbotson, Donald Keim, Nobel laureate Merton Miller, and Myron Scholes.
Dimensional manages $48 billion as of year-end 2003 and serves over 350 corporate, government, college endowment, charitable, and Taft-Hartley clients. Beginning in 1989, the firm began offering its low-cost institutional mutual funds to individual investors through a network of selected investment advisory firms. As one of these advisors, Safe Harbor Financial Planning plays a key role in educating clients about asset class investing, developing portfolio allocations to meet specific objectives, and helping them maintain the necessary discipline to ensure long term success. Dimensional does not distribute its funds through direct marketing or conventional broker/dealer firms.
Investment Philosophy
Dimensional’s approach is firmly rooted in the belief that markets are "efficient", and that investors’ returns are determined principally by asset allocation decisions, not market timing or stock picking. All portfolios employ a passive strategy designed to capture the return behavior of an entire asset class. The firm has no economists forecasting business cycles or interest rates, no investment strategists shifting allocations between stocks and bonds, and no analysts searching out "undiscovered" stocks.
Index funds are based on a similar philosophy, but Dimensional strategies differ from conventional indexed products in important respects. Instead of tracking popular market benchmarks developed by data vendors, they are designed to capture specific dimensions of worldwide returns which are accompanied by independent sources of risk. These dimensions are identified by rigorous academic research, often conducted by one or more of the leading financial economists with which the firm maintains a relationship. This focus on portfolio "engineering" distinguishes their approach from both traditional active managers and traditional indexers.
The firm also places great emphasis on minimizing trading costs. Rather than replicate an index in mechanical fashion, Dimensional employs a sophisticated block trading strategy that allows for slight variations in day-to-day portfolio balance versus precise market weighting. Placing the emphasis on low trading costs rather than tracking error offers a more reliable way to enhance net investment returns. The firm is proud of achieving negative trading costs over an extended period in illiquid market sectors such as U.S. small company stocks.
Fixed income strategies also depart from conventional indexing practice, employing a "variable maturity" approach that involves no interest rate forecasting, but shifts the portfolio maturity structure in response to changes in the shape of the yield curve.
Dimensional's overall objective is to help clients structure globally diversified portfolios that add value over simple index strategies while remaining consistent with a passive "no forecasting" philosophy.
Dimensional and Safe Harbor Financial Planning
Dimensional has historically managed money for a limited number of major institutional clients and is not structured to serve the general public or even the universe of investment professionals. They work closely with a limited number of investment advisors who share their belief in the importance of controlled asset exposure, broad diversification, low turnover, and low costs. Access to the funds is restricted to advisors demonstrating a commitment to employ business methods and investment strategies consistent with this philosophy. Safe Harbor Financial Planning is proud to be a member of this select group.
In order to maintain the low expense characteristic of institutional mutual funds, Dimensional requires us to place client trades through firms such as Fidelity Institutional or TD Ameritrade Institutional who maintain an "omnibus" account relationship with Dimensional and aggregate buy/sell orders on a daily basis. By adhering to this approach, we are able to purchase fund shares in amounts as small as $2,500, versus DFA’s published minimum of $2,000,000.
Dimensional Mutual Funds
Dimensional strategies are engineered to capture very specific asset class characteristics. They are not intended to be used in isolation, but rather as "building blocks" with which investment professionals can construct customized balanced portfolios tailored to client risk preferences.
(Safe Harbor Financial Planning receives no compensation or any other incentives from Dimensional for the use of their products).