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DFA Target Date Fund Portfolios, Here Come The Experts

dimensional-fund-advisors-target-date-portfolios-tda

This is the article displaying the Dimensional Target Date Retirement Income Fund portfolios (that’s a mouthful!). Here you will find a description, performance for the portfolios as well as detailed information on how to implement them yourself.

DFA Target Date Fund Portfolios, Here Come The Experts

Please note that DFA calls its target-date funds for Target Date Retirement Income Funds. 

Description for DFA retirement income funds portfolios

Dimensional Fund Advisors (DFA) is a hugely successful mutual fund provider ($600 billion AUM). They provide access to their funds only through advisors. This means you cannot buy them through your brokerage.

The Dimensional Fund Advisors methodology is weighted towards value and small-cap. This is no surprise as two of the investment committee members of DFA are Eugene Fama and Kenneth French. They pioneered the model for describing asset class premia. Value and small-cap are among those asset classes that have the highest returns. The impact on investing by Fama cannot be understated and is eloquently detailed in The Myth of the Rational Market by Justin Fox.

DFA is the room filled with the people that invented modern finance.

I regularly see a comparison between DFA and Vanguard. The issue stems from the fact that in some years DFA funds have better returns while in other years Vanguard funds have higher returns.

See for example:

https://dfavsvanguard.com/

https://www.altruistfa.com/dfavanguard.htm

https://www.ifa.com/articles/vanguard_dimensional_through_statistical_lens/

https://andrewhallam.com/2018/05/the-dimensional-fund-advisors-versus-vanguard-battle/

DFA funds have higher expense ratios than Vanguard funds – a lot higher.

“The number of managers that can successfully pick stocks are fewer than you’d expect by chance. So, why even play that game? You don’t need to.”

– David Booth, Founder and Executive Chairman, DFA

DFA says that their funds can better capture risk-premia (for example small-cap and value premia). They have also stated that their trading methodology is different from vanilla index providers in that they will sometimes hold off big block trades until circumstances have become profitable. See Master In Money Podcast With Ritzholz and his interview with David Booth.

This is market timing of course on a grand scale, but then again, all investing is a form of market timing. It is only a matter of degree.

See the video below on how DFA turns its market timing strategy into a trading advantage. Marketing at its very best.

Although late to the target-date retirement party DFA has launched a slew of target-date retirement funds. The funds from DFA are uncustomary lacking weighting towards value and small-cap. They also employ a good amount of TIPS. Don’t let that scare you. DFA employs Eugene Fama and Kenneth French on their investing committee.

Performance of DFA retirement income portfolios

The DFA Retirement Income Funds are funds of funds which means each retirement fund is a collection of other funds. In other words, each  DFA Retirement Income Fund is consists of several other DFA funds. This is a perfectly normal way of constructing target-date funds. It keeps down trading costs and lowers the complexity immensely. Both Vanguard and iShares employ the same methodology for constructing their target-date funds.

Disclaimer: These are target-date funds. By design, their asset allocation will change over time. In general, target-date funds shift more of their assets towards bonds as you age to lower your risk. This means that the asset allocation below will have changed until we update it here at portfolioeinstein.com.

Portfolio nameAsset class count1 year return (2019)Year to date10 year returnCAGR since 1989DrawdownRisk LevelExpense ratioYield
Dimensional 2030 Target Date Retirement Income Fund818.80%1.26%7.29%8.07%-22.61%3 - medium risk0.05%1.51%
Dimensional 2040 Target Date Retirement Income Fund723.94%1.83%9.04%8.65%-32.21%4 - high risk0.05%2.20%
Dimensional 2050 Target Date Retirement Income Fund726.49%1.94%10.02%9.05%-37.66%5 - very high risk0.05%2.23%
Dimensional 2060 Target Date Retirement Income Fund726.49%1.94%10.02%9.05%-37.66%5 - very high risk0.05%2.23%
Dimensional Retirement Income Fund711.03%0.64%4.45%6.56%-7.73%1 - very low risk0.06%1.00%

Note that the returns listed above for 2019 are higher (by approx. 2%) than those listed by DFA using their funds. This is because portfolioeinstein.com does not use DFA funds to replicate asset allocation but what we consider the best funds. We favor low fees and a high amount of transparency in selecting the best funds. As mentioned above there’s a constant discussion on which funds are the best.

Asset Allocation for Dimensional target-date portfolios

Dimensional 2030 target-date retirement income portfolio                             

  • 17.50%  US Total Stock Market   (VTI)
  • 17.50%  US Large Cap      (VV)
  • 10.50%  International Developed Blend      (VEA)
  • 5.20%    Emerging Markets           (VWO)
  • 5.20%    International All-World ex-US     (VEU)
  • 6.10%    Short-Term Investment-Grade   (VCSH)
  • 31.90%  TIPS       (VTIP)
  • 6.10%    2 Year Global Fixed Income         (BNDX)

Dimensional 2040 target-date retirement income portfolio                                           

  • 26.00%  US Total Stock Market   (VTI)
  • 26.00%  US Large Cap      (VV)
  • 15.50%  International Developed Blend      (VEA)
  • 7.60%    Emerging Markets           (VWO)
  • 7.70%    International All-World ex-US     (VEU)
  • 8.60%    Short-Term Investment-Grade   (VCSH)
  • 8.60%    2 Year Global Fixed Income         (BNDX)

Dimensional 2050 target-date retirement income portfolio                             

  • 29.80%  US Total Stock Market   (VTI)
  • 29.80%  US Large Cap      (VV)
  • 17.80%  International Developed Blend      (VEA)
  • 8.70%    Emerging Markets           (VWO)
  • 8.90%    International All-World ex-US     (VEU)
  • 2.50%    Short-Term Investment-Grade   (VCSH)
  • 2.50%    2 Year Global Fixed Income         (BNDX)

Dimensional 2060 target-date retirement income portfolio       

  • 29.80%  US Total Stock Market   (VTI)
  • 29.80%  US Large Cap      (VV)
  • 17.80%  International Developed Blend      (VEA)
  • 8.70%    Emerging Markets           (VWO)
  • 8.90%    International All-World ex-US     (VEU)
  • 2.50%    Short-Term Investment-Grade   (VCSH)
  • 2.50%    2 Year Global Fixed Income         (BNDX)

Dimensional retirement income portfolio

This is a post-retirement portfolio and meant to provide a source of stable income.

  • 6.40%    US Total Stock Market   (VTI)
  • 6.40%    US Large Cap      (VV)
  • 3.80%    International Developed Blend      (VEA)
  • 1.90%    Emerging Markets           (VWO)
  • 1.90%    International All-World ex-US     (VEU)
  • 47.60%  TIPS       (VTIP)
  • 32.00%  1 Year Fixed Income       (BSV)

Check the best mutual funds and ETFs here.

Resources for DFA retirement income funds portfolios

See a comparison of target-date funds in our article What Is The Best Target Date Fund?

Learn way more about target-date funds in our article Target Date Fund Portfolios

Learn about DFA here (super intro to what investing is right on the front page)

They also have a youtube channel with okay-ish info. It is updated regularly.

Conclusion

The Dimensional Target Date Retirement Income Funds are high returning portfolios. They are built using proven academic research.

What do you think of them – what do you think of DFA?

Which do you prefer Vanguard or Dimensional Fund Advisors?

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