The Rational Reminder Podcast

Episode 351 – DFA vs Vanguard

Apr 3, 2025

Dive into the fascinating history of Dimensional Fund Advisors and Vanguard, two titans in the asset management world. Uncover the birth of index funds and why Vanguard's innovative strategies reshaped investing. The discussion moves to the intricacies of multi-factor models and the vital role of diversification in portfolio management. Alongside practical investment insights, hear an uplifting personal update reflecting resilience in the face of health challenges, showcasing the human side of financial advising.

54:43

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Quick takeaways

DFA and Vanguard, both pivotal in investing history, illustrate contrasting approaches to asset management, emphasizing the balance between active and passive strategies.

The podcast highlights how the foundational theories of finance, particularly diversification and market efficiency, have shaped the investment landscape for both firms.

Performance comparisons reveal that while DFA may outperform Vanguard in certain conditions, the investment context ultimately determines results and risk exposure.

Deep dives

DFA vs. Vanguard Overview

The discussion centers on the comparison between Dimensional Fund Advisors (DFA) and Vanguard, two significant players in the investment world. Vanguard is renowned for its low-cost index funds, while DFA focuses on capturing long-term market inefficiencies through a more active approach. While Vanguard emphasizes market tracking, DFA employs strategies to potentially outperform the market by leveraging theories in finance, such as factor investing. This distinction raises the question of whether being more active can yield better returns compared to simply tracking an index.

Intro

4min

The Legacy of Index Funds

11min

Exploring Multi-Factor Models and Systematic Premiums

6min

Comparing Investment Strategies: Dimensional vs. Vanguard

24min

Understanding Financial Advisory and Personal Triumph

2min

Navigating Health Uncertainty and Podcasting Reflections

2min

The Podcast Evolution: Challenges and Listener Impact

6min

Dimensional Fund Advisors (DFA) and Vanguard have intersecting histories rooted in the development of the first-ever index fund. Vanguard's market-cap weighted index funds have been nothing short of revolutionary and they became synonymous with sensible investing for many good reasons, but Dimensional took implementing the ideas from academic finance a few steps further, leading to their own deserved acclaim. In today’s episode, Ben and Dan analyze over 30 years of history between DFA and Vanguard, from their founding and relationship to their rise as global leaders in asset management. We discover how their approaches to foundational finance theory differ, whether diversification is mostly semantics, and how DFA and Vanguard compare to one another over 25 years of matched US-domiciled mutual funds. We also discuss which approach is easier to implement, essential insights for fund advisors, DFA’s downsides despite its long-term outperformance of the Vanguard 500, and an uplifting cancer update from Ben in today’s After Show. For practical investment takeaways, tune in today!

Key Points From This Episode:

(0:01:14) Unpacking DFA and Vanguard’s history and relationship.

(0:03:10) Mac McQuown and the birth of index funds at Wells Fargo in 1964.

(0:07:48) How DFA and Vanguard became global leaders in asset management.

(0:10:43) Understanding DFA and Vanguard’s approach to foundational finance theory.

(0:19:34) The semantics of diversification.

(0:22:22) Comparing 25 years of matched Dimensional and Vanguard US mutual funds.

(0:33:36) Which fund advisor’s approach is easier for others to implement and why.

(0:39:30) How DFA has outperformed Vanguard in the long run (with downsides to consider).

(0:43:09) Recapping today’s conversation: what every fund advisor needs to know.

(0:46:41) The After Show: Ben’s cancer update, Dan as co-host, and listener reviews.

Links From Today’s Episode:

Meet with PWL Capital — https://calendly.com/d/3vm-t2j-h3p

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582 Rational Reminder Website — https://rationalreminder.ca/

Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on X — https://x.com/RationalRemindRational Reminder on TikTok — www.tiktok.com/@rationalreminder

Rational Reminder on YouTube — https://www.youtube.com/channel/

Rational Reminder Email — info@rationalreminder.caBenjamin Felix — https://pwlcapital.com/our-team/

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Dan Bortolotti on LinkedIn — https://www.linkedin.com/in/dan-bortolotti-8a482310/

Canadian Couch Potato — https://canadiancouchpotato.com/

Dimensional — https://www.dimensional.com/

Vanguard — https://investor.vanguard.com/

‘Remembering John “Mac” McQuown, Whose Curiosity Drove a Life of Innovation’ — https://www.dimensional.com/dk-en/insights/remembering-john-mac-mcquown-whose-curiosity-drove-a-life-of-innovation

‘Episode 182: John “Mac” McQuown: The Data Will Sort That Out’ — https://rationalreminder.ca/podcast/182

Wells Fargo — https://www.wellsfargo.com/

‘Episode 131: David Booth: The First Index Fund, Competing Fiercely, and Keeping it Simple’ — https://rationalreminder.ca/podcast/131

William F. Sharpe | Stanford University — http://web.stanford.edu/~wfsharpe/bio/bio.htm

‘Episode 316 - Andrew Chen: "Is everything I was taught about cross-sectional asset pricing wrong?!"’ — https://rationalreminder.ca/podcast/316

Marco Salmon on LinkedIn — https://www.linkedin.com/in/marco-a-salmon-a63512284

Books From Today’s Episode:

The Incredible Shrinking Alpha — https://www.amazon.com/dp/0857198246

Papers From Today’s Episode:

‘The relationship between return and market value of common stocks’ — https://doi.org/10.1016/0304-405X(81)90018-0

‘Market Efficiency’ — https://www.jstor.org/stable/246460

‘The Cross-Section of Expected Stock Returns’ — https://doi.org/10.2307/2329112

‘A Five-Factor Asset Pricing Model’ — https://dx.doi.org/10.2139/ssrn.2287202

‘The Performance of Mutual Funds in the Period 1945-1964’ — https://dx.doi.org/10.2139/ssrn.244153

‘The Death of Diversification Has Been Greatly Exaggerated’ — https://ssrn.com/abstract=2998754

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The Rational Reminder Podcast

Episode 351 – DFA vs Vanguard

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

DFA vs. Vanguard Overview

Historical Context and Contributions

Investment Strategy Differences

Performance Comparisons

Investor Considerations and Future Outlook

Remember Everything You Learn from Podcasts