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Dimensional Fund Advisors Target Date Funds: Liability-Driven Investing

Dimensional Fund Advisors (DFA) is a leading provider of target date funds (TDFs). TDFs are a type of mutual fund that is designed to provide investors with a diversified portfolio of assets that is appropriate for their age and retirement goals. DFA's TDFs are unique in that they use a liability-driven investing (LDI) approach. LDI is an investment strategy that focuses on matching the cash flow needs of a portfolio with the expected cash flow needs of its liabilities.

What is Liability-Driven Investing?

LDI is an investment strategy that is designed to reduce the risk of a portfolio not being able to meet its future obligations. This is done by matching the cash flow needs of a portfolio with the expected cash flow needs of its liabilities. For example, a pension fund may use LDI to ensure that it has enough money to pay its future pension benefits.

How Does Dimensional Fund Advisors Use LDI in Target Date Funds?

DFA uses LDI in its TDFs by investing in a mix of assets that are expected to generate a cash flow that will match the expected cash flow needs of the fund's investors. For example, a TDF that is designed for investors who are close to retirement may invest more heavily in bonds, which are expected to generate a more stable cash flow than stocks.

Benefits of Dimensional Fund Advisors Target Date Funds with LDI

There are several benefits to investing in DFA TDFs with LDI. These benefits include:

dimensional fund advisors target date funds ldi

Reduced risk: LDI can help to reduce the risk of a portfolio not being able to meet its future obligations.
Improved returns: LDI can help to improve the returns of a portfolio by investing in assets that are expected to generate a cash flow that will match the expected cash flow needs of the fund's investors.
Peace of mind: LDI can provide investors with peace of mind by knowing that their portfolio is invested in a way that is designed to meet their future needs.

How to Invest in Dimensional Fund Advisors Target Date Funds with LDI

DFA TDFs with LDI are available through a variety of financial advisors. To invest in a DFA TDF with LDI, you will need to open an account with a financial advisor and provide them with your investment goals and risk tolerance.

Conclusion

DFA TDFs with LDI are a valuable investment option for investors who are looking for a diversified portfolio that is designed to meet their future needs. LDI can help to reduce risk, improve returns, and provide peace of mind. If you are interested in investing in a DFA TDF with LDI, you should speak to a financial advisor.

Dimensional Fund Advisors Target Date Funds: Liability-Driven Investing

Additional Resources

Table 1: DFA TDFs with LDI

Fund	Age Range	Risk Level	LDI Strategy
DFA Target Date 2025	55-64	Moderate	Moderate
DFA Target Date 2030	45-54	Moderate	Moderate
DFA Target Date 2035	35-44	Moderate	Moderate
DFA Target Date 2040	25-34	Moderate	Moderate

Table 2: Benefits of DFA TDFs with LDI

Benefit	Description
Reduced risk	LDI can help to reduce the risk of a portfolio not being able to meet its future obligations.
Improved returns	LDI can help to improve the returns of a portfolio by investing in assets that are expected to generate a cash flow that will match the expected cash flow needs of the fund's investors.
Peace of mind	LDI can provide investors with peace of mind by knowing that their portfolio is invested in a way that is designed to meet their future needs.

Table 3: How to Invest in DFA TDFs with LDI

Step	Description
Open an account with a financial advisor.	You will need to open an account with a financial advisor in order to invest in a DFA TDF with LDI.
Provide your investment goals and risk tolerance.	Your financial advisor will need to know your investment goals and risk tolerance in order to recommend a DFA TDF with LDI that is appropriate for you.
Invest in a DFA TDF with LDI.	Once you have opened an account with a financial advisor and provided them with your investment goals and risk tolerance, you can invest in a DFA TDF with LDI.

Table 4: Questions to Ask a Financial Advisor

Question	Description
What is your investment philosophy?	This question will help you to understand the financial advisor's approach to investing.
How do you use LDI in your TDFs?	This question will help you to understand how the financial advisor uses LDI in their TDFs.
What are the fees associated with your TDFs?	This question will help you to understand the costs of investing in a TDF.