One of the foremost ways to successfully reach your financial goals is to understand your long-term needs and attitudes toward risk, savings and wealth and align them with a portfolio designed to help meet your goals.

Dimensional Fund Advisors (DFA) & LPL Research

By leveraging the keen insights and academia of Eugene Fama and Ken French along with the renowned fund family, Dimensional Fund Advisors (DFA), LPL Financial Research has constructed a series of models that can help clients achieve a lifetime of financial goals. Professors Fama and French, both agreed in their academic research that risk and return are related, however not all risks carry reliable rewards. Successful investing is a matter of identifying risks that bear compensation and choosing how much of these risks to tolerate. They believe that there are three “factors” that are the key determinants of portfolio performance and, to an overwhelming degree, explain differences in average returns between one diversified portfolio and another:

1. Market Risk: Stocks are riskier than fixed income
2. Size Risks: Small companies are riskier than large companies
3. Value Risks: Low-priced “value” stocks are riskier than healthy “growth” firms

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Asset Allocation Models using Dimensional (DFA) Funds

While some of these factors can increase volatility, through the proper use of asset allocation, volatility can be reduced to a level that is appropriate for you, while still empowering you to reach your long-term goals. LPL Financial and DFA have deployed the following asset allocation and fund design to create a Dimension Model that will align with your risk and volatility considerations.

1. Combine multiple asset classes that have historically experienced dissimilar return patterns across various financial and economic environments.
2. Incorporate global diversification to a portfolio by adding international investment exposure. Proper international diversification minimizes risk associated with concentration in any single country or currency.
3. Investing in thousands of securities can be achieved through appropriate fund selection, thereby minimizing industry-specific and company-specific risk.
4. Implement funds that create different exposures to securities that create value premium and small cap premium.

DFA Allocation Models According to Your Risk Tolerance

LPL Financial has developed Dimension Models 1, 2 and 3 to help you further align your investments with your own personal risk, volatility, and diversification preferences at one convenient annual advisory fee. The Sustainable and Tax-Aware models enable you to further align your investments with social or tax planning considerations. The Dimension Models are available in Model Wealth Portfolios. The portfolios benefit from state-of-the art technological monitoring, rebalancing* and tax management services implemented by the LPL Financial Overlay Portfolio Management Group. Consult with your Financial Advisor today to determine which Dimension Model is appropriate for you and your long-term investment goals.