This review is from: Index Funds: The 12-Step Program for Active Investors (Hardcover)

(FYI: The book can be read online, and pdf’s of each chapter downloaded, for free, at the IFA website)

In part the book is an advertisement for the author’s IFA investment company. It also provides the evangelical gospel about index investing in a very clear fashion. It’s perhaps the most artistic book on investing ever published, and for me, very educational. The diversified portfolio examples alone are well worth the price of the book. Vanguard could learn a whole lot from the IFA website about how to present complex information to the public in an easy to understand way.

Here’s the lowdown. There are two main index fund companies, Vanguard, and Dimensional Fund Advisors. Vanguard provides, for better or worse, true index funds. Dimensional Fund Advisors ($100 Billion company) provides mostly true index funds. One article termed it DFA’s brand of passive investing is not quite indexing. It eschews reliance on stock picking and market timing, which indexers also do, but it doesn’t tie itself slavishly even to its own custom-produced indices. DFA seems more sophisticated in their ways than Vanguard.

As a side note, DFA is partly owned by the Governator Mr. Arnold, along with a bunch of genuinely smart people.

DFA doesn’t sell funds directly to individual investors, preferring to sell their funds via independent advisors, of which there are many. IFA, owned by the author of this book, is one such independent advisor.

Best case scenario, DFA may outperform a comparable Vanguard Index recipe by as much as 2%. However, IFA’s fees (IFA + DFA’s + Schwab or Fidelity fees), on average, seem way higher than Vanguard’s, to my figuring 5- 10 times higher depending on the fund. Thus one has to ask, is it worth the potential 2% increase in a IFA (DFA) fund when you give at least 1 percent of that back in fees? That’s one to ponder.

Also, while I appreciate IFA making this very insightful index (passive) investing info available to the average person via an inexpensive book or for free via the website, I found it disappointing that the average investor may have a hard time meeting the $100,000 IFA account minimum. On that front, Vanguard is very much a company for the people as the minimums are way way lower.

All that aside, the book does a fantastic job of teaching the ins and outs of index fund investing and theory. Just be on guard about the rest of it and don’t get sucked in to IFA until you have examined the pros and cons in depth. There are many other authorized DFA vendors out there, but I haven’t had time to research them yet thus can’t say if IFA’s fees are high or low for the DFA universe.

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