Winston C. Yang
w i n s t o n at c s dot w i s c dot e d u
Created March 24, 2007
Modified March 25, 2007
I have read various financial books and web sites. They have numerical data, charts, quotes from famous investors, analogies, and advice. After a while, they seem to be saying the same things. Below, I have distilled the financial knowledge about mutual funds from my reading.
I am not a financial expert. For more details, seek a financial expert (especially the parts about traditional IRAs and retirement plans at work, which are my beliefs).
I created this web page by using the "Save as Web Page" option on Word X on a Mac. The outline below may have incorrect numberings in various browsers.
i. DFA was founded by and employs eminent economists, some of which are from the University of Chicago and some of which are Nobel Prize winners.
ii. DFA believes that markets are efficient and believes in a long-term (buy-and-hold) strategy. In contrast, other mutual fund companies might have short-term (market-timing) strategies.
iii. DFA uses academic research to help them find promising stocks. In contrast, other mutual fund companies use news, company statements, and company visits to find promising stocks.
iv. DFA uses index funds and uses their own indices. They do not slavishly follow popular indices like the S&P500, which are somewhat arbitrary.
v. DFA does not advertise. If you want to invest with DFA, you must seek a financial advisor who has taken a training course at DFA. (DFA does not want financial advisors or clients of financial advisors who are short-term investors, because they might interfere with DFA's long-term strategy.)
vi. There are no kickbacks between financial advisors and DFA. Financial advisors use DFA because they share DFA's beliefs about efficient markets and believe that DFA provides the best value for the financial advisors' clients.
i. A front-end load (also called "class A shares") means that you pay a fee to enter the mutual fund.
ii. A back-end load (also called "class B shares") means that you pay a fee to leave the mutual fund.
iii. A 12b-1 fee (also called "class C shares"), named after a section in the law, means that you pay the mutual fund an annual fee so that they can advertise and attract more investors.