Investment Philosophy
Our investment philosophy is based on Modern Portfolio Theory (MPT) and passive asset class investing. By using Dimensional Fund Advisors asset class funds, we work with you to implement the tenants of MPT and structure prudently diversified investment portfolios.
In May of 1992, the American Law Institute (ALI) issued a third restatement of the Prudent Investor Rule, as well as a vast majority of states having passed legislation with major revisions to the rule. Modern Portfolio Theory has been adopted by ALI as the standard by which fiduciaries should invest assets.
Three of the world's leading financial economists, William Sharpe, Harry Markowitz and Merton Miller, received a Nobel Prize for their contributions and on-going research resulting in the formation of MPT. The major tenets of Modern Portfolio Theory:
- New information is incorporated into stock prices so quickly, it is extremely difficult to exploit market anomalies.
- Over time, riskier assets provide higher expected returns as compensation for accepting greater risk.
- Adding high risk, low-correlating assets to a portfolio can reduce volatility and increase expected rates of return. Structure explains most of the variation in portfolio performance.
- Passive asset class fund portfolios can be designed with the expectation of delivering, over time, the highest expected returns for a given level of risk.
Disclosure with Risk & Return Chart
Eugene F. Fama and Kenneth R. French, "The Cross-Section of Expected Stock Returns," Journal of Finance 47, no. 2 (June 1992): 427-65.
Eugene F. Fama and Kenneth R. French are consultants for Dimensional Fund Advisors. This page contains the opinions of Eugene F. Fama and Kenneth R. French but not necessarily of Dimensional Fund Advisors or DFA Securities LLC, and does not represent a recommendation of any particular security, strategy, or investment product. The opinions expressed are subject to change without notice. This material is distributed for educational purposes only and should not be considered investment advice or an offer of any security for sale. Dimensional Fund Advisors ("Dimensional") is an investment advisor registered with the Securities and Exchange Commission. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This illustration is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products or services described. ©2009 by Dimensional Fund Advisors. All rights reserved.