Dimensional Retirement Income Fund
0.20%June 04 | MyPlanIQ portfolio symbol P_79051

Overview of the Dimensional Retirement Income Fund

1. Background Information and Philosophy

The Dimensional Retirement Income Fund is a lazy portfolio designed by Dimensional Fund Advisors (DFA), a prominent investment management firm known for its evidence-based approach to investing. DFA was founded in 1981 and is heavily influenced by academic research, particularly the work of Nobel laureates Eugene Fama and Kenneth French. The firm emphasizes low-cost, diversified portfolios that target specific risk and return objectives.

The philosophy behind this portfolio is to provide retirees or near-retirees with a balanced allocation that focuses on generating income while managing risk. The fund is designed to preserve capital and provide steady returns through a mix of equities and fixed-income securities, making it suitable for conservative investors seeking stability during retirement.

2. Asset Allocation and Holdings

The Dimensional Retirement Income Fund is allocated as follows:

• 6.40% in DFEOX (Dimensional Emerging Markets Core Equity Portfolio): Provides exposure to emerging markets, offering diversification and growth potential.
• 6.40% in DFUSX (Dimensional US Core Equity Portfolio): Focuses on US equities, offering broad market exposure.
• 3.80% in DFALX (Dimensional International Core Equity Portfolio): Provides international equity exposure, enhancing diversification.
• 1.90% in DFCEX (Dimensional Commodity Strategy Portfolio): Adds exposure to commodities, which can act as a hedge against inflation.
• 1.90% in DFIEX (Dimensional International Small Cap Portfolio): Offers exposure to international small-cap stocks, adding diversification and growth potential.
• 47.60% in DIPSX (Dimensional Inflation-Protected Securities Portfolio): Focuses on inflation-protected bonds, providing stability and protection against inflation.
• 32.00% in DFIHX (Dimensional High Yield Fixed Income Portfolio): Invests in high-yield bonds, offering higher income potential with moderate risk.

Diversification: This portfolio is well-diversified across asset classes, including US and international equities, commodities, and fixed-income securities. The inclusion of inflation-protected securities and high-yield bonds helps balance risk and return.

Risk Level: The portfolio is designed for conservative investors, with a significant allocation to fixed-income securities (79.6%) and a smaller allocation to equities (20.4%). This reduces volatility while providing steady income.

Pros:

• Strong diversification across asset classes and geographies.
• Focus on income generation and capital preservation, ideal for retirees.
• Inflation-protected securities provide a hedge against rising prices.

Cons:

• Lower equity exposure may limit growth potential during bull markets.
• High-yield bonds carry higher credit risk compared to investment-grade bonds.
• Limited exposure to alternative assets like real estate or private equity.

3. Application for Retirement 401(k) and IRA Investors

The Dimensional Retirement Income Fund is an excellent option for retirement investors, particularly those in or nearing retirement. Its conservative allocation aligns well with the goals of preserving capital and generating income. Here's how investors can utilize this portfolio in their 401(k) or IRA accounts:

For 401(k) Accounts:

• Identify funds in your 401(k) plan that closely match the holdings in the Dimensional Retirement Income Fund. For example:
• Look for a US equity index fund to replicate DFUSX.
• Choose an international equity fund to match DFALX and DFIEX.
• Select a bond fund with a focus on inflation-protected securities to mirror DIPSX.
• Opt for a high-yield bond fund to replicate DFIHX.
• If exact matches are unavailable, choose funds with similar objectives and risk profiles.

For IRA Accounts:

• Investors can directly purchase DFA funds if available through their brokerage or financial advisor.
• Alternatively, use low-cost ETFs or index funds that replicate the asset allocation of the Dimensional Retirement Income Fund.

By carefully selecting funds that align with the portfolio's allocation, investors can replicate the Dimensional Retirement Income Fund's strategy in their retirement accounts, ensuring a balanced and income-focused approach to retirement investing.