ASSETBUILDER - Scott Burns

[One-Zero]

I've done some searches on this site and found some scraps here & there regarding Assetbuilder.

I realize the biz is relatively new - but from what I'm reading so far, the rationale appears good for someone who wants to get into DFA but doesn't have the large initial amount as required by most brokers I've seen. I'm all about the DIY as many tout on this forum and have learned a great deal since finding this site 3 months ago, BUT I'd really like to get in on the DFA angle with my portfolio. At this point I'd lean towards the AB 10 model with ~60k.

Does anyone have anything on the critical side that would steer them away from Assetbuilder or their methodology in general??

thanks,
1-0

[LOL!]

I investigated on the web (didn't talk to any principals) a few DFA trained advisors. In the end, I decided that I could do it myself with the ETFs that are out there. I set up a DFA portfolio in a portfolio manager to benchmark compare my portfolio to. After 9 months of doing this, I am not as impressed with DFA as I used to be.

The trick is to really tilt to small cap and value and up that international percentage. In that "asset allocation tutorial" thread, none of the respondents had a small/value tilted portfolio. Most were tilted to large growth even though the participants thought they were not. I infer from that anecdotal evidence, that most do-it-yourselfers do not follow Fama-French ideas of modern portfolio theory even though they easily could.

As written elsewhere, I think there is a big difference between access to DFA funds and someone who will do tax-loss harvesting, rebalancing, hand-holding, and some estate planning for you. Some of the cheapest DFA providers will give you a cookie cutter DFA portfolio that you can essentially mimic yourself. Others will be more full-service. If you are prepared to do your own tax-loss harvesting, rebalancing and can stay the course through thick and thin, then I see no reason to use DFA or an advisor.

[AlmostDone]

Can you give a simple explanation of tax-loss harvesting?

[heyyou]

The DFA fund expenses are more than those on a stack of ETFs covering the same territory. No free lunch in that you have to pay more (advisor fee, DFA ERs) or you have to learn and do more (DIY allocating, purchasing, rebalancing). Much may depend on what your allocation is. If you aren't looking for a strong value and small tilt, DFA is not needed, so go to Vanguard. If you know why value and small are appealing, you probably already know enough to DIY without DFA.

[LOL!]

Simple explanation: interest-free loan from the IRS.
http://www.early-retirement.org/foru...&postcount=106

[rockyj]

Quote:

Originally Posted by AlmostDone Can you give a simple explanation of tax-loss harvesting?

As different asset classes you hold move up and down over time, you may be able to identify holdings in your portfolio that have gone down enough recently to allow you to realize a loss by selling them at a current low, so that you can lock in the loss to deduct against other gains or income for tax saving purposes. But obviously over time you don't want to just keep selling your momentary losers; you want to buy and hold, preserve your asset allocation and ride out the dips as the markets continue their erratic but general upward trend, right? So what you can do to harvest a tax loss is sell something at a loss, and then more-or-less immediately buy a similar amount of a different but equivalent fund/investment that fills the same asset class role in your portfolio (hence staying invested and preserving your asset allocation while harvesting the loss) or, if you're really stuck on holding that particular investment, sell it and wait at least a month to repurchase it (I think it's 31 days, someone else here can confirm) as required in order for the IRS to allow the loss for tax purposes. The potential problem with waiting the month is that maybe the investment you sold will rebound while you're waiting to repurchase and you'd miss out on the interim gain.

[heyyou]

Tax-loss harvesting: Having previously bought a fund or stock, the value is now down, so you sell it at a loss. That loss is used to offset some of your other gains from fund/stock sales in order to keep your taxes down. You buy a somewhat similar but not identical fund Y to keep your same allocation. I probably missed something that others will fill in.

[2B]

Quote:

Originally Posted by heyyou Tax-loss harvesting: Having previously bought a fund or stock, the value is now down, so you sell it at a loss. That loss is used to offset some of your other gains from fund/stock sales in order to keep your taxes down. You buy a somewhat similar but not identical fund Y to keep your same allocation. I probably missed something that others will fill in.

Perfect explanation of the facts and no fluff.

[One-Zero]

LOL, et al;

Thank You. For background, I've recently read ESRBob's books (which brought my attention to DFA), and then the '4 pillars' by Bernstein as recommended by many here.
So I believe I have a handle on the 'Why' of going strong small & value tilts...but certainly lack in the 'How' department and am itching to get on the train.
Its obvious I need to look into ETFs, an area outside of my comfort zone as I intended to either DIY with Vanguard MFs (knowing there are some value/small deficiencies I'd have to accept) or go DFA with something such as Burn's AB (accepting ERs above the DIY route).

Pretty sure I'm better off than when I started down this trail...I was parking everything in Target date MFs, an expensive 401k, and the TSP (I'll keep the TSP in place though).

?? Would it be accurate to state there aren't any glaring downsides other than ERs and some loss of efficiency as compared to the DIY ETF approach? I can accept taking on the overhead at this point until I get up to speed...and if I don't get up to speed as a DIY'er I feel I could do far worse considering I don't plan to tinker with the portfolio other than rebalancing as recommended.

Taking your time to respond has been greatly appreciated!

1-0

[LOL!]

I don't see any downsides except the extra costs. You mentioned ERs, but there is also an additional 'assets under management' fee as well as any capital gains taxes you would pay to sell existing taxable holdings when switching funds. Also AB is just one such DFA place there are many, many others including some that are fixed fee and not AUM. Search this forum and others for more info. Here's one such link that turned up in a search: http://www.early-retirement.org/foru...ght-28119.html

[One-Zero]

LOL from your post#4 in the linked thread you provided:

"Here is a synopsis of managed investing as espoused here on this message board and others. I make no apologies to those possibly offended by the following.
If you have less than a million dollars, you should learn enough to manage your own investments. It will take a weekend or two. You will need to learn all this anyways since you will not know if your manager/advisor is ripping you off or not without this knowledge anyways. See Investment Guide for an easy introduction to this.
You are going to use Vanguard for your assets and sometimes use their financial planning services for free if you have $250K with them or can deposit $100K with them. If you have less than $100K, you are really on your own and must read some books. But you can get free advice by reading the articles at FundAdvice.com - Home . You can also get expert personal free advice at Guide to the Vanguard Diehards Forums If you don't like the web for knowledge, you can read some books like The Bogleheads Guide .... and The Four Pillars of Investing.

If you have a million or more, then you are allowed to use a DFA-sanctioned provider, but only a low cost one like Rick Ferri at Portfolio Solutions or Evanson Asset Management - Main Page or Welcome to Cardiff Park Advisors and some others.
That's it in a nutshell."

I underlined some key statements I feel are directly applicable to my interest w/DFA; I'm not going all-in (just want to stash ~60K for starters) and perhaps don't have enough to make it worthwhile at this point, if ever...And more importantly, require more education on the topic. I do feel good knowing that I found/perused the very sites you refer to for my supplemental research on the web...these only reinforce my desire to diversify allocations a la value/small tilts.

I don't want to belabor the issue for many of you who've probably explained the subject many times in other threads - I'll run with what has been provided and see if I can't firm up a rational plan.

Thanks & Regards,
1-0

[LOL!]

My impression is that DFA-sanctioned advisors practically require you to be "all-in" and will not work with you if you do not commit all the way. This makes sense from an asset allocation point of view because one should consider ALL of one's assets in an asset allocation plan.

I would be interested in what you find out about this if/when you go in a DFA direction. Thanks and good luck!

[2B]

I looked at DFA funds and decided that their supposed benefit was more the result of carefully data mining historical results to create the "optimum" pseudo-index fund. They still suffer from fees double or more the comparable Vanguard index fund plus you have to pay an "advisor." All-in-all, I decided that it was another name for paying someone to manage your money and get a lower net return than if you did low cost index funds yourself.

I could be wrong that their fund techniques can out perform the stodgy indexes but it will take a decade or so to prove me wrong.

[samclem]

Last time I researched this (several years ago), I came away with the impression that going with DFA would allow me to get "purer" exposure to the more extreme ends of US value, US small, US value small, and the same categories in intl funds than I could get through Vanguard. Getting the "value half" of the S&P 500 is not the same as getting the 90th percentile large value stocks. In addition, because of the sheer size of almost any Vanguard fund, they'd introduce big price disruptions in relatively thinly-traded stocks. So, if I could have had DFA without the costs, I might have done it. But, taking the costs into consideration, I thought I'd do better at Vanguard.

As I said, that was several years ago. ETFs have modified the landscape somewhat, and maybe there are some good ones out there that would give a DFA-like exposure without the overhead.

[2B]

Quote:

Originally Posted by samclem As I said, that was several years ago. ETFs have modified the landscape somewhat, and maybe there are some good ones out there that would give a DFA-like exposure without the overhead.

I have IWD which is a "value" large cap ETF. It has an expense ratio of 0.2%. I bought it several years ago when I decided to build my portfolio with ETFs. While moving past SPY, I realized most of the ETFs don't have fees as low as Vanguard. Their performance also didn't make any difference. What's the difference of buying two funds where one is value and the other is growth versus buying the whole index?

DFA does let you get more exotic about asset classes but I consider their selection to be highly determined by their historical data mining.

[FinanceDude]

Quote:

Originally Posted by 2B DFA does let you get more exotic about asset classes but I consider their selection to be highly determined by their historical data mining.

Isn't historical data mining the very same avenue Vanguard expouses as the reason to buy index funds?

Keep in mind, noone can "buy" the index, not even Vanguard.......

[2B]

Quote:

Originally Posted by FinanceDude Isn't historical data mining the very same avenue Vanguard expouses as the reason to buy index funds? Keep in mind, noone can "buy" the index, not even Vanguard.......

Vanguard and DFA both have funds with a lot of history. They also both have many new funds to lure people into new indexes to chase. DFA pushes their wide diversity of funds and "shows" that their much more complicated asset allocations give a better return than the simplier Vanguard funds.

I don't believe their higher performance is based on actual 1/5/10 year performance of recommended portfolios but on what you could have gotten if you had done that asset allocation 10 or more years ago. Again, I might be wrong.

The engineer in me likes the extra choices available and I could have all sorts of fun creating a more complicated asset allocation. Rebalancing would be much more dynamic. I fall back on the basic premise that lower fees and index tracking will ultimately do pretty well (maybe not "best").

I think I calculated the cost of going with a DFA advisor was going to run around $10,000 per year for their fee and the extra fund fees. It seemed too high a % of my expected retirement living costs. There might be cheaper ways to do it but I'm not convinced that it would consistently beat the basic Vanguard indexes by enough to make it worth doing. The other things an advisor could offer me aren't really of interest since I have a very simple life.

[LOL!]

2B, ok, you would not be a suitable client of a DFA advisor (especially one of the low-cost DFA sanctioned folks), but many other people would. I think the DFA portfolios (e.g. look at assetbuilder or ifa.com) are outstanding and essentially the gold standard in Fama&French-style slice-and-dice. Would I go with them? No. Would I mind if my parents were invested with them? Not at all. Would I mind if my spouse went with them if I died? Not at all.

[2B]

Quote:

Originally Posted by LOL! 2B, ok, you would not be a suitable client of a DFA advisor (especially one of the low-cost DFA sanctioned folks), but many other people would. I think the DFA portfolios (e.g. look at assetbuilder or ifa.com) are outstanding and essentially the gold standard in Fama&French-style slice-and-dice. Would I go with them? No. Would I mind if my parents were invested with them? Not at all. Would I mind if my spouse went with them if I died? Not at all.

I totally agree with you. A "budget" route to DFA funds is probably the best way to an advisor if someone absolutely "needed" an advisor. The costs of the DFA advisors vary widely from what I've seen.

On the other hand, Vanguard will let you talk with an advisor if you have enough money with them. I haven't talked with one of their advisors but from what I recall people on this forum weren't real impressed.

I still believe everyone can easily learn to manage their own finances but I will also say some people never will care that much. Also, someone that is elderly that has lost the ability to handle their finances might be better off with a DFA advisor than letting their less than responsible children rob them blind. Unfortunately, every elderly person I've seen that has lost their mental capacity doesn't think (or admit) they have.

[free4now]

This thread motivated me to look into DFA funds. I came away with the same conclusions that others here espoused: I like the way the funds are run, with the small/value orientation and fewer taxable events than indexes. It's been a while since anything has looked like it might be better than vanguard indexes for me, so finding the DFA funds helped shake me up a bit mentally.

But the higher fees for DFA seem like they would eliminate the slight advantages of the DFA funds. I'm can get the small/value weighting with vanguard funds by simply buying more of those funds.