Every client that we work with is different, but all share one common characteristic. They want to improve their standard of living; they want to consume more in the future. Of course, to achieve this goal, clients have to do their part by saving enough for a long enough period of time. We also have to do our part by providing behavioral guidance and then investing in a way that can lead towards the desired outcome.
The investing part is what I want to dwell on today. Perhaps we don’t shine the light brightly enough on Dimensional and how unique they are in the world of investing.
Interview with Dr. Gerard O’Reilly
Our friend across the pond, Robin Powell of The Evidence Based Investor recently interviewed Dr. Gerard O’Reilly, Co-CEO of Dimensional. His CEO role is shared with Dave Butler, who first exposed our firm to Dimensional 20 years ago. Gerard is an interesting and highly intelligent person with an undergraduate degree in theoretical physics from Trinity College in Dublin and a doctorate in Aeronautics and Applied Mathematics from Cal Tech.
One section of Robin’s interview particularly stood out to me. Gerard says, “What we have been able to do at Dimensional is pursue those (risk) premiums in a very diversified, cost efficient, low turnover way so that, people can expect to consume more in the future by investing in funds that pursue these premiums than they would by just investing in the market.”
Dimensional Leads the Way
Being able to consume, or spend, more in the future is the cornerstone of all that we do on behalf of our clients. Dimensional provides us the tools through which we can accomplish that end. Dimensional has proven that- just like in other fields, like medicine- identifying relevant risk factors can provide an edge.
Regardless of what is happening in the world around us, there will always be risk premiums. That is, investors will always demand different levels of expected returns for differing levels of risk, such as between stocks and bonds. Dimensional has led the way in researching the relevant risk factors and how these should be applied.
To me, perhaps the single most impressive thing about Dimensional is that the investment approach truly follows the scientific evidence without any preconceived notions. At the core of the philosophy is a belief in these truths: capital markets work; and further, that markets have rewarded long-term investors.