Comparison Period Changes Everything

Investment Advisors are likely to show you their “fund du jour” and show you how their fund out performed the DOW or the S&P500 or some other well known index. But, be aware. The date that is used as the start date for comparison can significantly change the conclusions one reaches based on the comparison.

Below, I present four comparisons; one year, five years, ten years and twenty years. The comparisons use the Dow Jones Industrial Average  (represented by the ticker symbol DIA) values.

There is academic research that says Small Cap Value stocks/funds do better than “the market”. This research is put to the test. Two index funds will be used for comparison to the DOW and S&P 500.

  • Vanguard’s US Small Cap Value (VISVX) and
  • Dimensional Fund Advisor’s (DFA) US Small Cap Value
    (DFA  funds are continuously at the top of Dalbar’s list of “Best Index Funds”).

The color coding on the charts is as follows

  • The blue line tracks Vanguard’s Small Cap index fund
  • The red line tracks DFA’s Small Cap index fund
  • The yellow line tracks the Dow Jones Industrial Average (DIA)
  • The green line tracks Vanguard’s Standard & Poor 500 index fund
  • The orange line track the Russell 2000 fund (has 2000 stocks in it).

To see a larger image, click the chart.

One Year Comparison

Small Cap Value, 1 Year

For the one year analysis, DFA and Russell 2000 are neck and neck with the Dow (DIA) and the S&P looking like dogs some 15-20% behind.

Five Year Comparison

Small Cap Value, 5 year

For the Five Year comparison, the Dow and S&P500 are still trailing but not by so much; DFA is the leader of the closely grouped pack.

Ten Year Comparison

Small Cap Value, 10 Year

The 10 year comparison reveals new truths. DFA has fallen to the bottom, even below the Dow and its cousin the S&P 500. Vanguard is on top closely followed by Russell 2000.

TWENTY YEAR COMPARISON

Small Cap Value 20 Year

LONG TERM WINNER: DIA

For the 20 year evaluation period, the one that matters most to us, things are topsy turvy. Vanguard is on the BOTTOM, DFA has outpaced Vanguard 2-1. and the Dow is tied with Russell2000 for the top position having outpaced Vanguard 3-1. Remember, we are looking at a very long horizon. It’s appropriate to concentrate on long term performance.

DIA vs Emerging markets

It doesn’t seem to matter what you compare the Dow to… here it is compared to Emerging Markets, a sector that vacillates annually between best performer and worst performer.

Here’s the 10 year perspective:

Emerging Markets 10 years

But look how things change when we look at the performance over 20 years.

Emerging Markets 20 Year

Conclusion and Confirmation

The working hypothesis of The Plan is that an investment in a fund that replicates the DOW  (represented here by DIA), will, in the long run, outperform any other portfolio regardless of what is in it.  The comparisons above appear to confirm this hypothesis. The same outcomes occur regardless of what type of security is being compared.

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