When I discovered Jonathan Clements 20 years ago, I noticed right away we had a lot in common. We were both early advocates for evidence-based investing (or “passive investing,” back then). We both knew better than to heed all the “noise” from the vast majority of the popular press. We knew even then, our jobs were to help investors focus on the essentials: reducing costs, managing market risks, understanding the science of investing.

There was one difference between us. While I was a fiduciary investment advisor for a then-small firm, Clements was the personal financial columnist for The Wall Street Journal, and one of the few voices of reason in the media. His columns left me optimistic, knowing we were not alone.

At the time, I did not notice a physical resemblance. Funny what a few years will do. These days, I see we now share a similar hair style as well!

Whatever. We’re both still going strong doing what we love: I, in my role at Hill Investment Group, and Clements, as proprietor of the Humble Dollar blog and author of the newly published, “From Here to Financial Happiness.”

One of his recent posts, “Tell Us a Story,” caught my attention. We often employ story-telling in our client conversations here at HIG. But, as Clements points out, it’s important to not let random anecdotes distract you from the greater story of evidence-based investing. “Detail the inevitable failure of most investors to beat the market,” he says, “and someone will bring up the neighbor who purportedly bought Amazon’s stock at the initial public offering and never sold.”

I agree. There’s always “the neighbor,” or cousin, or co-worker who hits the random jackpot. Good for them. But, as Clements concludes: “The weight of our many mediocre investment decisions eventually sinks in – and (you were expecting me to say this) the logic of indexing proves irresistible.”

If you’re looking for other thoughtful ideas about achieving financial happiness, you might find Clements’ materials irresistible as well. From one white-haired gent to another: Hat’s off to you, Jonathan!

Speaking of Vanguard versus AQR, another frequently asked question we get here at Hill Investment Group is why we typically use Dimensional Fund Advisors instead of Vanguard for the core of our portfolio builds. Vanguard typically beats Dimensional in terms of raw fund expense ratios (i.e., how much the investor pays to fund management). And we often emphasize how important it is to manage costs. Shouldn’t that mean Vanguard is the obvious choice? Our answer: Expense ratios are an important consideration, but they’re not the only one. At HIG, our Investment Policy Committee (IPC) is tasked with remaining current on these sorts of comparisons. To supplement our own, independent analyses, we also keep an eye on the work of respected colleagues, such as the BAM ALLIANCE’s Chief Investment Officer Jared Kizer, CFA. As a former colleague, Jared graciously agreed to let us share his own recent research report here: “Comparing DFA- vs. Vanguard-Oriented Portfolios.” I found Jared’s analysis compelling, and I hope you do as well. Enjoy the read.

As we described in this related article, we’re fans of taking a rules-based approach to investing instead of trying to actively forecast a market’s next move or a stock price’s next swing. Attempts to outsmart the market are more likely to waste your energy than deliver higher long-term returns.

So, this begs the question: Why don’t we recommend index funds exclusively for our clients?

We really like aspects of the indexing philosophy. Passively managed index funds typically employ a rules-based strategy to capture returns by tracking a popular index at a low cost. So far, so good. But, as we focus in, like we did in this piece, we start to find some inefficiencies that point to why index funds may not be the optimal vehicle for clients looking to maximize market returns. Curious to learn more? Give us a call.