Management
Structuring a strategy around compensated risk factors lends purpose to an investor's portfolio. Rather than analyzing individual securities, investing becomes a relatively simple matter of deciding how much stock to hold versus bonds, and how small or large, and value- or growth-tilted the stocks should be. By focusing on what matters, Dimensional focuses your efforts.
Traditional managers do one of two things: Active managers focus on picking individual stocks, the antithesis of diversification; index managers hold many securities but mimic arbitrary benchmarks.
Dimensional chooses a different path. It structures strategies based on scientific evidence rather than on commercial indexes. As a result, investors achieve more consistent portfolio structure.
| Dimensional Management Compared to Traditional Portfolio Management | ||||
|---|---|---|---|---|
| Dimensional Management |
Active Management |
Index Management |
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Assumes markets work. |
Assumes markets don't work. |
Assumes markets work with no liquidity cost. |
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Captures specific dimensions of risk identified by financial science. |
Attempts to beat the market through security selection and market timing. |
Allows commercial benchmarks to dictate strategy. |
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Minimizes transaction costs and enhances returns through portfolio design and trading. |
Generates higher turnover, transaction costs, and taxes due to speculative trading. |
Accepts high transaction costs and turnover in favour of tracking. |
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