Ifa Brochure

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Step 1: Active Investors

Step 5: Manager Pickers

Step 9: History

Step 2: Nobel Laureates

Step 6: Style Drifters

Step 10: Risk Capacity

Step 3: Stock Pickers

Step 7: Silent Partners

Step 11: Risk Exposure

Step 4: Time Pickers

Step 8: Riskese

Step 12: Invest and Relax


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Table of Contents

Ver. 1-26-2015

IFAs Team and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

The Value of a Passive Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Overview of Index Funds: The 12-Step Recovery Program for Active Investors . . . . . . . . . . . . . . . . . . 4-5

Step 1: Active Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Step 2: Nobel Laureates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Step 3: Stock Pickers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Step 4: Time Pickers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Step 5: Manager Pickers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Step 6: Style Drifters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Step 7: Silent Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Step 8: Riskese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Step 9: History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Step 10: Risk Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Step 11: Risk Exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Step 12: Invest and Relax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

IFA Index Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

IFA Index Portfolio Data: Risk & Reward Table. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

IFA Index Portfolio Data: High-Low Comparison Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

IFA Index Portfolio Fact Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

IFA Target Date Index Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

IFA Target Date Index Portfolio Fact Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Disclosure for Backtested Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

Sources and Description of Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii


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Index Fund Advisors, Inc. (IFA) is a registered

investment adviser with the Securities and Exchange

Commission and is based in Irvine, Caliornia. IFA is

a ee-only advisory irm ounded in 1999 to provide

its clients individual risk-appropriate passive investing

strategies with a iduciary standard o care. IFAs

investment advice and portolio implementation aredesigned or individuals, retirement plans, trusts,

endowments, oundations, and other accounts. IFA has

over 2,000 clients located throughout the country and

manages $2.6 billion o assets as o December 31, 2014.

IFAs investment philosophy is based on ive principles

that derive rom academic research, much o which has

been recognized with the awarding o the Nobel Prize in

Economic Sciences:

1) Financial markets are efficient.Prices in ree markets

ully incorporate available inormation, and prices

change to reflect any unexpected new inormation so that

the current price is the best estimate o a air price.

2) Risk and return are inseparable.While there is no such

thing as return without risk, not all risks are rewarded.

Long-term historical risk and return data inorms IFAs

investment selection process, and IFAs Index Portolios

IFAs Team and Services

seek to capture the risk actors that have shown to most

appropriately compensate investors or risks taken. Teserisk actors include market, size, value, and profitability

or equity and term and deault or fixed income.

3) Diversification is essential. Diversification both

within and among asset classes allows investors to

effectively capture the returns offered by the financial

markets, in accordance with their risk capacity.

4) Structure explains performance.Te expected return

o a diversified portolio is determined by its exposureto the compensated risk actors, as explained previously.

Te high costs and risks o active management are

unnecessary and potentially harmul to an investors

long-term outlook.

5) Advisor Advantage.Tere are distinct and quantifiable

benefits to enlisting the services o a passively oriented

advisor. Tese benefits include disciplined rebalancing,

tax loss harvesting, asset location, and glide path.

IFA matches its clients with risk-appropriate portolios

comprised o globally diversiied blends o index unds,

primarily rom Dimensional Fund Advisors (DFA). IFA

works with three reputable irms that serve as custodians

to hold and protect client assets: Charles Schwab &

Company, Fidelity Investments and D Ameritrade.

IFA clients make the choice.

For updates, and urther inormation, visit ia.com.


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The Value of a Passive Advisor

As low-cost index und investing continues to gain in

popularity, numerous researchers have turned their

attention to quantiying the value a passive advisor can

bring to an index portolio. One such study conducted by

Vanguard, the leading provider o index unds quantified

the advisor alpha at 3%. Tis advisor alpha is the sum othe value added by advisors who adhere to the principles o

controlling costs, maintaining discipline and tax awareness,

relative to other advisors or unadvised investors. Te

greatest contribution a passive advisor brings is behavioral

coaching, according to the study or as William Bernstein

so succinctly puts it: Wall Street is littered with the bones

o those who knew just what to do, but could not bring

themselves to do it. Te breakdown o the advisor alpha

set orth in Vanguards study is shown below.

IFA has compiled the findings o 22 more financial industry

studies (including our own internal studies) that have

explored the success investors have had at capturing und

returns. Collectively, the summary o the research reveals

that the average active investor and do-it-yoursel indexer

did not capture the ull return o the unds they investedit. Te advised indexeror an investor who relies on the

services o a passive advisordid better. Specifically, active

und investors without passive advisors (blue bars) captured

an average o 51.93% o the actual returns delivered by the

unds over various time periods (Data or all studies is ound

in the Appendix). Do-it- yoursel indexers without passive

advisors (purple bars) did better than active investors, but

still only captured an average o 82.67% o the index und

return. A knowledgeable passive advisor can provide several

services, including the critical discipline needed to combat

emotional, reflex reactions. When advice is combined with

unds rom DFA, a science-based passive und company,

investors avail themselves o the opportunity to keep more

o what the market delivers. A 10-year study conducted by

Morningstar concluded that those who invested in DFA

unds captured up to 109% o the und returns, thanks

to the very smart behavior that is practiced by passive

investment advisors who have committed to helping their

clients understand the sources o stock market returns,

the impact o emotions, and the value that science-based

investing can bring to a portolio. 1-22

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Overview of Index Funds:The 12-Step Recovery Program for Active Investors

STEP 1 - ACTIVE INVESTORS:Recognize an Active InvestorActive investors try to pick winners among the many stocks, times, managers, and investment stylesThese investors must not realize that markets are moved by news, which is unpredictable and random

Markets are also efcient, meaning that news is rapidly reected in market prices. As a result, activeinvesting is not expected to be a protable strategy. A more reliable source of long-term returnsis consistent exposure to economic risk factors backed by more than 87 years of historical data.

STEP 2 - NOBEL LAUREATES:Defer to the Higher Knowledge of AcademiaThe research of many academics and Nobel Prize winners has explained the efciency of nanciamarkets and the risk and reward connection. Their ndings are unbiased, as these academics arenttrying to earn a commission or sell magazines and newspapers. More than a hundred years of academicresearch point to index funds investing as a sound investment strategy. Sadly, the great majority ofinvestors have never read these academic studies and continue to actively invest.

STEP 3 - STOCK PICKERS:Accept That Stock Pickers Do Not Beat the MarketStock picking is similar to gambling in that bets are placed on certain companies in the marketAn academic study23 found that 99.4% of active fund managers (who supposedly should be amongthe best of stock-pickers) displayed no evidence of genuine stock-picking skill, and the 0.6% ofmanagers who did outperform the index were just lucky.24 An additional study25 conducted by

Standard and Poors found that there is no persistence of stock-picking ability beyond what wewould expect from chance alone.

STEP 4 - TIME PICKERS:Accept That Time Pickers Cannot Time the Market

There is no evidence that market timing gurus can consistently time the market. A peer-reviewedstudy26 analyzed more than 15,000 predictions by 237 market-timing investment newsletters fromJune 1980 through December 1992. The authors found that almost 95% of the newsletters hadgone out of business, with an average length of operations of about four years. They also found thatover 75% of the newsletters actually erroded value relative to a simple mix of cash and the S&P 500Index. The authors concluded, There is no evidence that newsletters can time the market.

STEP 5 - MANAGER PICKERS:Realize That Winning Managers Were Just LuckyThe so-called star money managers have a knack for attracting new mutual fund investors, charging ahefty fee for gambling with clients money. Even more disturbing, results of a study of 8,755 institutionamanagers show that, on average, the managers who beat their benchmarks for three years before being

hired then lost to their benchmarks in the following three years. The same study also looked at 660 hiringand ring decisions and concluded that the managers who were red beat the new hires in the next 3-yearperiod.27Attempting to choose the next hot fund manager is futile.

STEP 6 - STYLE DRIFTERS: Comprehend Active Management Style DriftAbout half of mutual fund managers drift from one recent style winner to another, playing carelessly

with investors money. The investment objective stated in the prospectus of funds is altered by thesechanges. The Standard & Poors Indices Versus Active Funds Scorecard (SPIVA) is a report thatprovides information on the consistency or persistence of funds staying true to their styles. Datafrom the Mid-Year 2014 report reveals that only 51.62% of mutual funds remained style consistentfrom 2009 - 2014.28


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STEP 8 - RISKESE: Understand How Risk, Return and Time are InterconnectedDo you speak Riskese? Learning the language of risk will afford you a basic understanding of risk, returntime, and diversication. Most investors chase the short-term returns of stocks, markets, managersand styles, because they dont understand that risk is the source of stock market returns. Returns ofdiversied stock portfolios are explained by their exposure to ve dimensions of risk: market, size, valueterm and default30. All ve factors are depicted in the renowned Fama/French Five-Factor Model, which

serves as a framework for designing and analyzing diversied investment portfolios.

STEP 7 - SILENT PARTNERS:Recognize The Partners in Your ReturnsSilent Partners eat away at both realized and unrealized investment gains. They do this through feesexpenses, taxes, and ination. Over time, this can cost investors in actively managed funds nearly 55%

of their ending wealth.29On the other hand, investors can avoid both high costs and high taxes byemploying a passive investment strategy, which allows them to keep a bigger share of their returns pie.

STEP 9 - HISTORY:Historical Risks and Returns of IndexesLong-term data is required to improve the estimates of the expected risk and return for differentinvestments. We now have more than 87 years of monthly risk and return data on 21 important IFAindexes. Since you cannot predict the future based on a small sample of recent events, the study of

long-term stock market data is a valuable source of meaningful information, leading investors to a bettercharacterization of the risks and expected returns of various asset classes and whole index portfolios.

STEP 10 - RISK CAPACITY:Analyze Your Five Dimensions of Risk Capacity

Whats your risk capacity? A simple survey can analyze your ve dimensions of risk capacity: timehorizon, attitude toward risk, net worth, income, and investment knowledge. Risk capacity can beregarded as a measurement of an investors ability to earn stock market returns. Calculating riskcapacity is the rst step in deciding which portfolio will be most appropriate for each investor. Arisk capacity score determines the proper risk exposure for an investors portfolio.

STEP 12 - INVEST & RELAX:Rebalance, Tax Loss Harvest, Glide Path, and Asset LocateOnce you understand the lessons provided in this booklet, you will be able to invest and relax. Thatswhat clients of IFA allow themselves to do when they experience IFAs commitment to duciaryduty, ongoing and sound advice, long-term risk and return data, rebalancing, asset allocation, assetlocation, the glide path, tax loss harvesting, and emotions management. These are just a sampling ofthe many advisory services that IFA provides its valued clients.

STEP 11 - RISK EXPOSURE:Analyze Your Five Dimensions of Risk ExposureInvestors can expect to achieve optimal results when their risk capacity score is matched with one ofIFAs 100 Index Portfolios of comparable risk exposure. At IFA, we call this matching people withportfolios. Taking on the appropriate amount of risk enables investors to maximize their expected

outcome. Each Index Portfolio is constructed with a specic blend of asset class funds that capture aquantiable level of risk exposure. A properly designed index portfolio will include more than 13,000stocks and bonds from over 44 countries around the world.


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Step 1: Active InvestorsRecognize an Active Investor

Active investing is a strategy that investors use when

trying to beat a market or appropriate benchmark. Active

investors rely on speculation about short-term uture

market movements and ignore vast amounts o historical

data. Tey commonly engage in picking stocks, times,

managers, or investment styles.

Tese sel-deeating practices o active investors

unnecessarily increase their risk, expenses, taxes, and

anxiety. Most importantly, the sport o speculation

deprives investors o the returns they could earn i they

would simply buy and hold a passively managed blend

o globally diversified index unds matched to their risk

capacity.

Te chart below tells the story. It reflects the findings o

a 2014 Dalbar study, revealing that the average equity

und investor significantly underperormed the S&P

500 over a 30-year period. Te study shows that during

the 30 years rom 1984 through 2013, the average equity

und investor earned returns o only 3.69% per year,

while the S&P 500 returned 11.11%. Tis means that the

average equity und investor grew a $100,000 investment

to $296,556, while the growth o $100,000 invested in the

S&P 500 would have been $2,358,275. Even better, we see

that a simulated passive investor who owned an all-equity,

small-value-tilted, globally diversified index portolio such

as IFAs Index Portolio 100 would have grown a $100,000

investment to $3,272,448 over the 30-year period.31

Most investors would be better off in an index fund.

Peter Lynch, famous stock picker, Barrons,

page 15, April 2, 1990


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Step 2: Nobel LaureatesDefer to the Higher Knowledge of Academia

Active investors disregard some o historys most

important lessons. Most do not read the peer-reviewed

academic studies and Nobel Prize-winning economic

research available. Tey instead rely on media messages to

guide their investing decisions, largely unaware o the act

that media outlets profit handsomely rom the advertising

dollars o online brokers, trading services and active trader

publications that encourage us to trade. Nearly 300 years

o statistical, scientific and economic research explain why

investors who buy, hold and rebalance an investment in

global capitalism reap rewards in proportion to the risks

they take. Tree centuries o study rom notable scientists

and researchers regarding risk, probability theory, statistics,

the random nature o prices and asset-pricing theory have

been painstakingly studied, analyzed and summarized by

the legends o financial science, some o whom are depicted

below. Collectively, these great minds have delivered to us

a method o investing that is ounded upon the principles

o market efficiency, the returns o capital markets, and

the Invisible Hand which guides market orces, prices,

allocation o resources, the cost o capital, and the returns

o capitalism. Investing according to the findings o these

legends enables you to be a better investor.

Adam SmithBlaise Pascal

Burton MalkielDavid Booth

Eugene FamaPaul Samuelson

Harry Markowitz William Sharpe

Kenneth French

Louis Bachelier

Merton Miller

Rex Sinquefield Michael JensenJohn Bogle

Friedrich von Hayek


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Step 3: Stock PickersAccept That Stock Pickers Do Not Beat the Market

Te financial press largely ocuses on the daily

movements o stocks and markets, showering rewards

on those who are lucky enough to be in the right place

at the right time. But it is virtually impossible or a

stock picking und manager or individual stock picking

investor to consistently predict and invest in the stocks

that will be uture winners, based on the tenets o market

efficiency. Stock pickers tend to be overly confident

in their skill to generate alpha (defined as any return

above the benchmark return), but studies have shown

that their winning perormance is usually due to luck,

not skill. Proessors Laurent Barras, Olivier Scaillet and

Russell Wermers conducted a study32o 2,076 mutual und

managers over a 32-year period. Tey ound that rom 1975

2006, 99.4% o these managers displayed no evidence

o stock picking skill, and the 0.6% o managers who did

outperorm the index were statistically indistinguishable

rom zero. In other words, they were just lucky.

If there are 10,000 people looking at the stocks and trying to pick winners, well, one in

10,000 is going to score, by chance alone, a great coup, and thats all thats going on. Its

a game, its a chance operation, and people think they are doing something purposeful

but theyre really not. Merton Miller, Ph.D., Nobel Laureate, PBS Nova

Special, The Trillion Dollar Bet, 2000


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Step 4: Time PickersAccept That Time Pickers Cannot Time the Market

ime pickers (market timers) mistakenly believe they can

predict the uture movement o the stock market, moving

into the market beore it goes up and getting out beore

it goes down. Such decisions usually do not are well,

because they are based on the allacy that the direction o

uture price movements can be predicted. At any point

in time, any investor can only know the current and past

price o any given security. Nonetheless, market timing

can be alluring, likely because investors dont understand

that the market continuously sets prices in response to

news, which is unpredictable.

In a study titled, Likely Gains rom Market iming,

Nobel Laureate William Sharpe concluded a market timer

must be correct 74% o the time in order to outperorm a

passive portolio at a comparable level o risk.33In 1992, SEI

Corporation updated Sharpes study to include the average

9.4% stock return rom the period 1901 1990. Tis study

determined that gurus must be right at least 69% o the time.34

CXO Advisory Group tracks public orecasts o sel-

proclaimed market timing gurus. Te chart below shows

the percentage grades o 28 market timers who had made

more than 100 orescasts rom 2000 through 2012. Te

study shows that not one o the gurus was able to meet

Sharpes requirement o 74% accuracy, or SEIs minimum

69%, thereby ailing to delivery accuracy sufficient to beat

a simple index portolio.35


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Step 5: Manager PickersRealize That Winning Managers Were Just Lucky

Active investors unnecessarily increase their risk, expenses,

taxes, and anxiety. Numerous studies have shown actively

managed investments generally carry more risk and lower

returns than globally diversified, risk-calibrated index

portolios. Despite this act, investors requently all

prey to the allure o past winners, hiring the hottest new

und managers only to fire them later because their past

perormance doesnt persist in subsequent periods.

A 10-year study conducted by Amit Goyal o Emory

University and Sunil Wahal o Arizona State University

ound that manager hiring and firing decisions made

by consultants, board members and trustees were a

complete waste o time and money. Te study, Te

Selection and ermination o Investment Management

Firms by Plan Sponsors, reveals the negative impact o

manager picking. Te results o hiring 8,755 managers

shown below, illustrate that during the 10-year period

rom 1994 through 2003, managers that were hired had

outperormed their benchmarks by 2.91% over the three

years beore being hired. However, over the ollowing three

years the managers underperormed their benchmarks

by 0.47% per year. Plan sponsors ofen proceeded to fire

their underperorming managers in avor o other recent

top perormers, only to repeat the cycle again. Te study

concluded, In light o such large transaction costs and

positive opportunity costs, our results suggest that the

termination and selection o investment managers is an

exercise that is costly to plan beneficiaries.36

Most people think they can find managers who can outperform, but most people are

wrong. I will say that 85% to 90% of managers fail to match their benchmarks, if you

properly specify their benchmarks. Jack Meyer, former Harvard Management CEO,

Harvard University Endowment

Businessweek.com, Interview Excerpt, Dec. 27, 2004


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Step 6: Style DriftersComprehend Active Management Style Drift

Style drif occurs when an active manager drifs rom

a specific style, asset class or index that is described as

the stated investment purpose o a und. Style drif is

a serious problem or investors who believe they are

invested in a portolio that matches their risk capacity.

Since managers o active unds seek to outperorm the

benchmark, they ofen wander outside the boundaries

o the benchmark, altering the unds exposure to risk

and its volatility o returns.

One particularly egregious example o style drif is

the Fidelity Magellan Fund as shown in the top figure

below. In the 33-year period rom 1982 to 2014, Magellan

morphed and evolved several times. For example, in mid-

1995, the und looked like a large value und, despite the

act that its benchmark was the large blend S&P 500.

In contrast to the style drifing tendencies o actively

managed unds like Fidelitys Magellan, passively managed

unds (specifically those provided by DFA) adhere to strict

rules o construction and are held constant regardless

o market conditions. Te figure on the bottom shows

the relative style purity o the DFA U.S. Large Company

Portolio, which also has the S&P 500 as its benchmark.


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Step 7: Silent PartnersRecognize The Partners in Your Returns

Tere are many silent partners that quietly but determinably

eat away at an active investors returns pie. A partial list o

silent partners that erode investors returns includes state and

ederal taxes, sales commissions, mutual und expense ratios,

und turnover, and transaction costs.

A John Bogle study concluded that over a 25-year period,

$10,000 invested in the average managed equity und grew

to a pre-tax value o $108,300, and an afer-tax value o

$71,700. In contrast, $10,000 invested in the S&P 500 grew

to a pre-tax value o $181,800 and an afer-tax value o

$159,000.37

Part o the disparity in ending wealth is due to active

managers charging higher ees than passive managers as

compensation or their perceived skill. In both U.S. and

non-U.S. strategies, the average actively managed und is

more expensive than the average passive und.

Te bar chart reveals the disparity in average expense ratios

between actively managed mutual unds and IFA Index

Portolio 60. As o December 2014, a similar portolio o

actively managed unds would have been more than three

times as costly as IFA Index Portolio 60.

urnover is also a silent devourer o wealth. Active mutual

unds are known to have higher turnover rates than passive

unds, creating tax liabilities that erode returns. Even or

non-taxable investors, high turnover can be expensive.

A recent article in the Financial Analysts Journal stated

that the average annual cost o trading incurred by equity

mutual unds was 1.44%, which even exceeds the average

expense ratio o 1.19%.38

Although most index unds are tax efficient by nature, some

indexes can be urther tax-managed to save an investor

more in taxes. ax-managed index unds are efficient at

offsetting realized gains with realized losses, deerring the

realization o net capital gains and minimizing the receipt

o dividend income. Te benefit is that unrealized capital

gains remain a growing part o the net asset value o a und

and assists in overall wealth accumulation.

Some of active managements true believers will shift assets from expensive products to

more reasonably priced products. Impetus for this move will be the growing realization

that high fees sap the performance potential of even skillful managers.

Richard M. Ennis, editor, Financial Analysts Journal, as quoted

in John C. Bogles The Little Book on Common Sense Investing


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Step 8: RiskeseUnderstand How Risk, Return and Time are Interconnected

Index unds investors are optimally rewarded or

understanding and shouldering stock market risk. In act,

the very reason investors should expect to earn a return is

because o the risks they take. Te key is to take the risks

that have shown to compensate investors and to diversiy

away uncompensated risks. Stock concentration, und

manager speculation, perormance chasing, market

timing, and sector concentration are uncompensated

risks that carry no additional expected return beyond

that o a market portolio.

Te beneficial relationship between risk and return or

passive investors is set orth in the scatter plot shown

below. Te chart plots the risk and return characteristics

or a spectrum o the 100 IFA Index Portolios

(numbered) and their composite indexes (lettered)

or a 50-year time period. Also shown are the indexes

that IFA underweights (letters in squares). Tese asset

classes are underweighted because they have shown to

deliver higher risk without an adequate corresponding

return. For example, the U.S. Small Growth Index carried

significant risk but had lower returns than the Emerging

Markets Value Index. Te IFA Index Portolios are

comprised o unds that enable reasonable returns or

the risks involved. Tis is why investors should take on

as much o the right risks as their risk capacity allows,

rebalance and just hold on or as long as they can.

Some investments do have higher expected returns than others. Which ones? Well, by

and large theyre the ones that will do the worst in bad times.

William F. Sharpe

Moneymagazine, July 2007

U.S.

Total

Market*


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Step 9: HistoryHistorical Risks and Returns of Indexes

Historical stock market data provides investors with a

powerul set o tools or constructing portolios that can

maximize expected returns at given levels o risk. By

analyzing the historical returns or various asset classes,

including stocks, bonds, private equity, real estate, and

even precious metals, an investor can see the difference

between compensated and uncompensated risk over time.

Most investors tend to make investment decisions based

on the most recent 1, 3, and 5-year returns and assume

that recent past perormance will persist. But long-term

data can be more valuable than short-term data.

Te chart below shows the annualized returns and risk or

value, blend and growth indexes around the world over

various periods o time: 86 years o history or U.S. large

and small capitalization stocks, 39 years o stock history or

non-U.S. developed markets, and 25 years o stock history

or emerging markets. Te chart illustrates the impact o

size and value investing across global asset classes. Across

each asset class shown, small and value indexes carried

increased risk and return characteristics. IFAs Index

Portolios tilt towards small and value indexes, allowing

clients to increase their expected return without increasing

their overall stock to bond allocation.

Those who are ignorant of investment history are bound to repeat it. Historical

investment returns and risks of various asset classes should be studied. Investment

results for an asset over a long enough period (greater than 20 years) are a good guide to

the future returns and risks of that asset. Further, it should be possible to approximate

the future long-term return and risk of a portfolio consisting of such assets.

William Bernstein, The Intelligent Asset Allocator


16/3915

Step 10: Risk CapacityAnalyze Your Five Dimensions of Risk Capacity

In order to optimize investment outcome rom a risk

and return perspective, it is IFAs view that investors

should take on as much risk as their risk capacity allows.

Risk capacity can be regarded as a measurement o an

investors ability to earn stock market returns. he

problem is that most investors invest without a clear

understanding o risk or with an improper measure o

how much risk is right or them.

Trough IFAs Risk Capacity Survey at ia.com, investors

learn the amount o risk that is appropriate or them. Te

Five Dimensions of Risk Capacity

results o the survey provide a personalized Risk Capacity

Score, which is based on the ollowing five dimensions

or each investor: time horizon and liquidity needs,

attitude toward risk, net worth, income and savings rate,

and investment knowledge. Tis score is the primary

tool IFA uses to determine the proper asset allocation

or each client. A higher score suggests a capacity o

tolerating high risk investing to obtain the potential or

higher returns. A lower score indicates a risk aversion

and the need to invest more conservatively. Each score

corresponds to one o IFAs 100 Index Portolios.


17/3916

Step 11: Risk ExposureAnalyze Your Six Dimensions of Risk Exposure

o achieve optimal results, investors need to match their

Risk Capacity Score with a specific risk exposure. At IFA,

we call this process, matching people with portolios.

Many investors choose a common 60/40 (stock/bond)

asset allocation, regardless o their risk capacity. A more

prudent strategy is to invest in a portolio that directly

corresponds to a particular risk capacity.

IFAs 100 Index Portolios cover the spectrum o risk

and expected return, with portolios ranging rom very

high risk to very low risk. Each IFA Index Portolio is

constructed with a specific blend o asset class index

unds that capture a quantifiable level o risk exposure.

Tis is accomplished through exposure to six dimensions

o riskdimensions which have been responsible or

approximately 96% o returns.39 Based on the extensive

research o Eugene Fama and Kenneth French, these

dimensions are: exposure or sensitivity to the market, as

a whole, the degree to which the portolio is tilted toward

size (market capitalization), value (book-to-market

ratio), and direct profitability (gross profits scaled by

book value) o the equity holdings, as well as exposure

to term and deault risk or the fixed income holdings.

Each o IFAs Index Portolios offers a sophisticated risk-

appropriate approach, capturing risk exposure in order to

maximize expected returns at a given level o risk exposure.

Six Dimensions of Risk Exposure


18/3917

RebalanceIFAs clients benefit rom strategies that acilitate investment success. In particular, IFAs

ongoing proessional account management includes quarterly analysis or rebalancing

opportunities to ensure that portolio risk exposure remains in line with an individuals risk

capacity.

Tax Loss HarvestAn additional value added eature available to IFAs clients is opportunistic tax loss harvesting.

By selling unds that have experienced significant losses, investors can bank capital losses

to offset uture gains. Once the IRS wash sale rules have been met, the unds are repurchased.

Careul consideration is given to the appropriateness o this strategy on a case-by-case basis.

Glide PathIFAs clients may choose to take advantage o a sophisticated Glide Path eature to their

portolios, creating a set it and orget it approach or a successul and less stressulinvestment strategy. When clients choose the Glide Path option, they will automatically

experience a reduction o one risk level each year, thus permitting a smooth and effortless

glide into retirement.

Asset LocationJust as important as asset allocation is asset location. For a client who has a mixture o

accounts, such as taxable, traditional IRAs and Roth IRAs, taxes can be minimized by

constructing an overall portolio that includes multiple investment vehicles located in

dierent types o accounts. IFA evaluates each account to determine i it should be a

stand-alone or part o an asset location strategy.

Retirement AnalyzerA retirement analysis utilizing Monte Carlo simulation helps clients understand key

actors in retirement investing. IFA adds these signiicant enhancements to its suite o

services in order to provide a high standard o care to clients who entrust the management

o their valued assets to the irm.

Step 12: Invest and RelaxRebalance, Tax Loss Harvest, Glide Path, and Asset Locate

IFAs 100 risk-calibrated Index Portolios allow investors

to step off the expensive and emotional roller coaster o

active investing and step up to a more prudent strategy that

implements the Nobel Prize-winning research reerred to

as Modern Portolio Teory.

IFAs clients enjoy the benefits o investing in risk-

appropriate, style-pure index portolios that carry more

than 87 years o risk and return data. Tese portolios are

ormulated using investment science based on economic

theories and isolated risk actors that have been shown to

carry higher returns over time.

In summary, clients of Index Fund Advisors are able to invest condently and comfortably

as they step off the expensive, emotional roller coaster of active investing.


19/3918

IFA Index Portfolios

IFA offers 100 individualized, diversified Index

Portolios allocated among three broad asset classes:

fixed income (bonds), U.S. stocks, and non-U.S. stocks.

Te stocks are urther divided by size and value.

General asset allocations or 20 o these portolios are

presented below. Te portolios are labeled 5 through

100 in five-point increments. IFA Index Portolio 5,

which has the lowest expected risk and return, is tilted

toward fixed income with a minor investment in stocks.

Conversely, IFA Index Portolio 100, which has the

highest expected risk and return, has no fixed income

and the stock indexes are tilted toward small and value

companies in the U.S. and international markets.

Te tables on the next two pages show the risk and return

or the same 20 Index Portolios (starting with Portolio

100), including the highest and lowest rolling period

returns or each Portolio.

Following the Risk/Return Data are act sheets or our IFA

Index Portolios. Te data or each portolio consists o a list

o the indexes contained in the portolios, simulated returns

and volatility data, charts that represent annual returns

and growth o $1, corresponding annualized returns, and

a 50-year monthly rolling period analysis, which provides

a simulation o passive investor experiences. Afer the act

sheets are the disclosures or backtested perormance data

and the sources and description o data used to simulate

risk and return characteristics, including the mutual unds

needed to implement these portolios.

The best way in my view is to just buy a low-cost index fund and keep buying it regularly

over time, because youll be buying into a wonderful industry, which in effect is all of

American industry People ought to sit back and relax and keep accumulating over time.

-Warren Buffett, MarketWatch, May 7, 2007


20/3919

IFA Index Portfolio DataRisk & Reward Table


21/3920

IFA Index Portfolio DataHigh-Low Comparison Table

-49.3

8%

-31.3

7%

-5.4

4%

3.5

0%

%00.02

%29.32

%05.23

%35.63

%11.15

%34.77

%72.81-

%92.7

12.9

5%

16.2

0%

-47.0

2%

-29.5

8%

-4.8

4%

3.6

8%

%54.91

%22.32

%14.13

%32.53

%92.84

%97.27

%99.61-

%82.7

12.6

7%

15.4

0%

-44.6

3%

-27.8

0%

-4.2

6%

3.8

2%

%88.81

%15.22

%23.03

%49.33

%15.54

%82.86

%47.51-

%62.7

12.3

8%

14.6

1%

-42.2

1%

-26.0

2%

-3.7

1%

3.9

5%

%13.81

%08.12

%32.92

%46.23

%87.24

%88.36

%05.41-

%22.7

12.0

7%

13.8

2%

-39.7

6%

-24.2

5%

-3.1

9%

4.0

6%

%47.71

%80.12

%41.82

%53.13

%01.04

%85.95

%92.31-

%71.7

11.7

6%

13.0

3%

-37.2

9%

-22.4

9%

-2.6

9%

4.1

5%

%61.71

%63.02

%60.72

%50.03

%54.73

%04.55

%01.21-

%11.7

11.4

3%

12.2

5%

-34.7

8%

-20.7

3%

-2.2

1%

4.2

2%

%85.61

%46.91

%89.52

%67.82

%58.43

%13.15

%49.01-

%40.7

11.1

0%

11.4

7%

-32.2

5%

-18.9

7%

-1.7

5%

4.2

8%

%89.51

%19.81

%09.42

%74.72

%92.23

%07.74

%87.9-

%59.6

10.7

5%

10.7

0%

-29.7

0%

-17.2

2%

-1.3

2%

4.3

1%

%93.51

%71.81

%28.32

%81.62

%67.92

%03.54

%56.8-

%68.6

10.4

0%

9.9

4%

-27.1

1%

-15.4

7%

-0.9

1%

4.3

3%

%97.41

%34.71

%47.22

%98.42

%23.72

%29.24

%45.7-

%57.6

10.0

3%

9.1

8%

-24.5

0%

-13.7

3%

-0.5

2%

4.3

3%

%81.41

%96.61

%66.12

%16.32

%12.62

%85.04

%44.6-

%36.6

9.6

5%

8.4

2%

-21.8

7%

-11.9

9%

-0.1

5%

4.3

2%

%65.31

%49.51

%95.02

%23.22

%01.52

%62.83

%63.5-

%05.6

9.2

7%

7.6

8%

-19.2

1%

-10.2

5%

0.2

1%

4.2

8%

%59.21

%91.51

%15.91

%40.12

%99.32

%79.53

%03.4-

%23.6

8.8

7%

6.9

5%

-16.5

3%

-8.5

2%

0.5

4%

4.2

4%

%23.21

%44.41

%15.81

%57.91

%78.22

%27.33

%52.3-

%89.5

8.4

6%

6.2

3%

-13.8

2%

-6.7

8%

0.8

6%

4.1

2%

%17.11

%86.31

%45.71

%74.81

%57.12

%94.13

%12.2-

%36.5

8.0

5%

5.5

4%

-11.0

8%

-5.0

5%

1.1

5%

3.7

7%

%01.11

%79.21

%37.61

%91.71

%36.02

%82.92

%02.1-

%72.5

7.6

2%

4.8

9%

-8.3

3%

-3.3

2%

1.4

3%

3.4

0%

%84.01

%14.21

%02.61

%26.61

%15.91

%11.72

%91.0-

%09.4

7.1

8%

4.2

8%

-5.5

5%

-1.5

9%

1.7

0%

3.0

3%

%58.9

%48.11

%76.51

%01.61

%46.81

%59.42

%97.0

%25.4

6.7

4%

3.7

5%

-2.9

6%

0.1

3%

1.9

4%

2.6

4%

%22.9

%72.11

%21.51

%75.51

%30.81

%38.22

%34.1

%31.4

6.2

8%

3.3

3%

-2.4

4%

0.4

8%

1.3

8%

2.2

2%

%56.8

%07.01

%85.41

%40.51

%24.71

%59.12

%87.0

%37.3

5.8

1%

3.0

8%

-43.3

2%

-26.0

8%

-6.6

3%

-3.4

3%

%62.81

%94.91

%27.92

%04.33

%14.73

%10.16

%90.61-

%01.7

9.8

0%

15.0

0%


22/39


23/39


24/39


25/39


26/3925

IFA Target Date Index Portfolios

arget Date Index Portolios are appropriate

investments or investors o all ages because they

provide a risk appropriate one-step solution.

hey are designed to be a buy-and-hold, lietime

investment. his means that this target date

investment strategy is to be held through all kinds o

market conditions, no matter how bad or good they

appear to be. Investors only need to select the target

date that is closest to the year they plan to retire. hese

strategies enable investors to invest in a risk reducing

series o globally diversiied asset a llocations o stocks

and bonds that is appropriate or them. he portolios

automatically reduce risk over time by decreasing the

allocation to stocks by 1% per year. IFA implements

the Index Portolios by selecting and monitoring

lower-cost passively managed unds.

Holders were four times less likely to trade out of their target-date investments during

the market plunge of 2008 than holders of other 401(k) investments.

- Target-Date Funds Take Over, Barrons, 7/5/2014

Higher Risk Lower Risk

SuitableAge

30

35

40

45

50

55

60

65

25

90/10

Stock/Bond Allocation

85/15 80/20 75/25 70/30 65/35 60/40 55/45 50/50

From IFA Index Portfolio 90 to IFA Index Portfolio 30

70

75

80

85

45/55 40/60 45/65 30/70

YearsBeforeRetirement

35

30

25

20

15

10

5

0

40

YearsAfterRetirement

15

10

5

Glide Path = Reduce One Portfolio Number For Each Passing Year Assume: Retirement at age 65

Target Date IndexPortfolio 2055








RETIREMENT

Target Date= Current Year + Years Before Retirement


27/39


28/39


29/39


30/39


31/39i

DisclosuresDisclosure for Backtested Performance Information, the IFA Indexes,

and IFA Index Portfolios (updates can be found at www.ifabt.com):

1. Index Fund Advisors, Inc. (IFA) is an SEC registered Investment Adviser.Information pertaining to IFAs advisory operations, services, and fees isset forth in IFAs current Form ADV Part 2 (Brochure), a copy of which isavailable upon request and at www.adviserinfo.sec.gov. The performanceinformation presented in certain charts or tables represent backtestedperformance based on combined simulated index data and live (or actual)mutual fund results from January 1, 1928 to the period ending date shown,using the strategy of buy and hold and on the rst of each year annually

rebalancing the globally diversied portfolios of index funds. Backtestedperformance is hypothetical (it does not reect trading in actual accounts)

and is provided for informational purposes only to indicate historicalperformance had the index portfolios been available over the relevant timeperiod. IFA refers to this hypothetical data as a Simulated Passive InvestorExperience (SPIE). IFA did not offer the index portfolios until November1999. Prior to 1999, IFA did not manage client assets. The IFA indexinginvestment strategy is based on principles generally known as ModernPortfolio Theory and the Fama and French Three Factor Model for Equitiesand Two Factor Model for Fixed Income. Index portfolios are designedto provide substantial global diversication in order to reduce investment

concentration and the resulting potential increased risk caused by thevolatility of individual companies, indexes, or asset classes.

2. A review of the IFA Index Data Sources (ifaindexes.com), IFAIndexes Time Series Construction (http://www.ifa.com/disclosures/

charts/#timeseries) and several of the Dimensional Indexes (http://www.ifa.com/disclosures/charts/#dfafunds) is an integral part of this disclosureand should be read in conjunction with this explanation of backtestedperformance information presented. IFA denes index funds as mutual

funds that follow a set of rules of ownership that are held constantregardless of market conditions. An important characteristic of an indexfund is that its rules of ownership are not based on a forecast of short-termevents. Therefore, an investment strategy that is limited to the buying andrebalancing of a portfolio of index funds is often referred to as passiveinvesting, as opposed to active investing. Simulated index data is basedon the performance of indexes and live mutual funds as described in theIFA Indexes Data Sources page. The index mutual funds used in IFAsIndex Portfolios are IFAs best estimate of a mutual fund that will comeclosest to the index data provided in the simulated indexes. Simulatedindex data is used for the period prior to the inception of the relevant livemutual fund data and an equivalent mutual fund expense ratio is deducted

from simulated index data. Live (or actual) mutual fund performance isused after the inception date of each mutual fund. The IFA Indexes TimesSeries Construction goes back to January 1928 and consistently reects

a tilt towards small cap and value equities over time, with an increasingdiversication to international markets, emerging markets and real estate

investment trusts as data became available. As of January 1928, there are4 equity indexes and 2 bond indexes; in January 1970 there are a totalof 8 indexes, and there are 15 indexes in March 1998 to present. See(http://www.ifa.com/disclosures/charts/#IFA_evolution) to see the analysisof the evolution of these portfolios. This names the indexes used in theIFA Portfolios for each period, and shows the Time Series Construction ofthe IFA indexes. If the original 4 equity indexes from 1928 (IFA US LargeCompany Index; IFA US Large Cap Value Index; IFA US Small Cap Index;IFA US Small Cap Value Index) are held constant until December 2012, theannualized rate of return of this simplied version of IFA Index Portfolio 100

is 10.67%, after the deduction of a 0.9% IFA advisory fee and a standard

deviation of 23.59%. The evolving IFA Indexes over the same period havea 10.99% annualized return for IFA Index Portfolio 100 after the same IFAadvisory fees and a standard deviation of 22.66%. The stitching togetherof index and live fund data and adding international markets, emergingmarkets and REITs only had a slight impact on risk and return over this85 year period. Instead, it demonstrates the value of a small cap andvalue tilt in global equity markets, since over the same period a SimulatedS&P 500 Index only had a return of 9.53% (with no fees deducted), at astandard deviation of 19.19%. Backtested performance is calculated byusing a computer program and monthly returns data set that start with therst day of the given time period and evaluates the returns of simulated

indexes and DFA index mutual funds. In 1999, tax-managed funds becameavailable for many different DFA index funds.

3. Backtested performance does not represent actual performance and

should not be interpreted as an indication of such performance. Actuaperformance for client accounts may be materially lower than that of theindex portfolios. Backtested performance results have certain inherenlimitations. Such results do not represent the impact that material economicand market factors might have on an investment advisers decision-makingprocess if the adviser were actually managing client money. Backtestedperformance also differs from actual performance because it is achievedthrough the retroactive application of model portfolios (in this case, IFAsIndex Portfolios) designed with the benet of hindsight. As a result, the

models theoretically may be changed from time to time and the effect onperformance results could be either favorable or unfavorable.

4. History of Changes to the IFA Indexes: 1991-2000: IFA Index Portfolios10, 30, 50, 70 and 90 were originally suggested by Dimensional FundAdvisors (ifa.com/pdf/balancedstrategies.pdf), merely as an example oglobally diversied investments using their custom index mutual funds

back in 1991 with moderate modications in 1996 to reect the availability

of index funds that tracked the emerging markets asset class. IndexPortfolios between each of the above listed portfolios were created by IFAin 2000 by interpolating between the above portfolios. Portfolios 5, 95 and100 were created by Index Fund Advisors in 2000, as a lower and higheextension of the DFA 1991 risk and return line. As of March 1, 2010, 100IFA Index Portfolios are available to IFA clients, with IFA Index Portfoliosbetween the shown allocations being interpolations of the 20 allocationsshown. In January 2008, IFA introduced three new indexes and eighteensocially responsible portfolios constructed from these three indexes andve pre-existing IFA indexes. The new indexes introduced were: IFA

US Social Core 2 Equity, IFA Emerging Markets Social Core, and IFAInternational Real Estate. All three use live DFA fund data as long as it hasbeen available. Prior to live fund data, they use index data supplied by DFAmodied for fund management fees. In April 2008, IFA introduced two new

indexes and eighteen sustainability portfolios constructed from these twoindexes and ve pre-existing indexes. The new indexes introduced were

IFA US Sustainability Core 1 Equity and IFA International SustainabilityCore Equity. In November 2011, IFA made a change to the index dataused in its large growth and small growth indexes. Fama/French datawas replaced with data supplied by Dimensional Fund Advisors via itsReturns 2.2 program. For large growth, the difference in annualized returnwas about 1% (a decrease). For small growth, the difference was abou0.2%. In November 2012, IFA changed the allocations and the historicareturns for its socially responsible portfolios to reect the introduction o

the DFA International Social Core Equity Portfolio (DSCLX). Prior to thisthe international developed equity asset class was unavailable in a socially

responsible implementation. Although clients who were invested in theold allocation from the time it became available (January 2008) likely didbetter than they would have done with the new allocation, the difference isnot statistically signicant, and it is IFAs advice that going forward having

an exposure to international developed equities will provide a substantiadiversication benet to socially responsible investors. As of Septembe

2013, all new clients will be placed into the NEW IFA Index Portfoliosand all existing clients will be given the option to transition to the newportfolios. Index Portfolio 100 was held the same as it has been since2000 and became the only 100 percent equity portfolio in the NEW IndexPortfolios. The four xed income indexes (25% each) remain the same as

they have been since 2000 and will make up the xed income allocation o

all IFA index portfolios in the allocation equal to 100-New IP#. Go to wwwifa.com/btp/historyofchange.html to see a summary of changes made tothe IFA Indexes and Index Portfolios.

5. Backtested performance results assume the reinvestment of dividendsand capital gains and annual rebalancing at the beginning of each yearIt is important to understand that the assumption of annual rebalancinghas an impact on the monthly returns reported for the IFA Index Portfolioin both the Risk and Reward Table (www.ifabigtable.com) and the IndexCalculator (www.ifacalc.com). For monthly rebalancing, the monthly returnis calculated with the assumption that the portfolio is perfectly in balanceat the beginning of each month. For annual rebalancing, the year-to-datereturn is calculated with the assumption that the portfolio is perfectly inbalance at the beginning of the year. The latter assumption underlies thereturns shown for the IFA Index Portfolios. In actual portfolios, howeverrebalancing occurs at no set time, and such actions are dependent on bothmarket conditions and individual client liquidity inows and outows, along

with the cost impact of such transactions on the overall portfolio. Thereforeactual monthly and year-to-date returns will differ from the IFA Returns


32/39ii

Calculator. The reason for this difference is that with annual rebalancing,the monthly returns are calculated from the ratio of the year-to-date growthof $1.00 at the end of the month to the year-to-date growth of $1.00 at thebeginning of the month. For monthly rebalancing, the monthly return iscalculated with the assumption that the portfolio is perfectly in balance atthe beginning of the month. The performance of the IFA Index Portfoliosreects and is net of the effect of IFAs annual investment management fee

of 0.9%, billed monthly, unless stated otherwise. Monthly fee deduction isa requirement of our software used for backtesting. Actual IFA advisoryfees are deducted quarterly, in advance. This fee is the highest fee IFAcharges. Depending on the amount of your assets under management,

your investment management fee may be less. Backtested risk and returndata is a combination of live (or actual) mutual fund results and simulatedindex data, and mutual fund fees and expenses have been deductedfrom both the live (or actual) results and the simulated index data. WhenIFA Indexes are shown in IFA Index Portfolios, all returns data reects a

deduction of 0.9% annual investment advisory fee, which is the maximumIFA fee. Unless indicated otherwise, data shown for each individual IFAIndex is shown without a deduction of the IFA advisory fee. We choosethis method because the creation, choice, monitoring and rebalancing ofdiversied index portfolios are the services of the independent investment

advisor and at that point the fees are appropriate to deduct from the wholeportfolio returns. Since we accept no fees from investment product rms,

IFA compares index funds based on net asset value returns, which arenet of the mutual fund company expense ratios only. Although indexmutual funds minimize tax liabilities from short and long-term capitalgains, any resulting tax liability is not deducted from performance results.

Performance results also do not reect transaction fees (as seen at www.ifafee.com) and other expenses, which reduce returns.

6. For all data periods, annualized standard deviation is presented asan approximation by multiplying the monthly standard deviation numberby the square root of 12. Please note that the number computed fromannual data may differ materially from this estimate. We have chosenthis methodology because Morningstar uses the same method. Go towww.ifabt.com for details. In those charts and tables where the standarddeviation of daily returns is shown, it is estimated as the standard deviationof monthly returns divided by the square root of 22.

7. The tax-managed index funds are not used in calculating the backtestedperformance of the index portfolios, unless specied in the table or chart.

8. Performance results for clients that invested in accordance with the IFA

Index Portfolios will vary from the backtested performance due to marketconditions and other factors, including investments cash ows, mutual

fund allocations, frequency and precision of rebalancing, tax-managementstrategies, cash balances, lower than 0.9% advisory fees, varyingcustodian fees, and/or the timing of fee deductions. As the result of theseand potentially other variances, actual performance for client accounts maydiffer materially from (and may be lower than) that of the index portfolios.Clients should consult their account statements for information about howtheir actual performance compares to that of the index portfolios.

9. As with any investment strategy, there is potential for prot as well as the

possibility of loss. IFA does not guarantee any minimum level of investmentperformance or the success of any index portfolio or investment strategy.All investments involve risk and investment recommendations will notalways be protable.

10. Past performance does not guarantee future results.

11. IFA Index Portfolio Value Data is based on a starting value of one, asof January 1, 1928.

12. DISCLAIMER: THERE ARE NO WARRANTIES, EXPRESSEDOR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTSOBTAINED FROM ANY INFORMATION PROVIDED HEREIN OR ONTHE MATERIAL PROVIDED. This document does not constitute acomplete description of our investment services and is for informationalpurposes only. It is in no way a solicitation or an offer to sell securities orinvestment advisory services. Any statements regarding market or othernancial information is obtained from sources which we and our suppliers

believe to be reliable, but we do not warrant or guarantee the timeliness

or accuracy of this information. Neither our information providers nor weshall be liable for any errors or inaccuracies, regardless of cause, or thelack of timeliness of, or for any delay or interruption in the transmissionthereof to the user. All investments involve risk, including foreign currencyexchange rates, political risks, market risk, different methods of accountingand nancial reporting, and foreign taxes. Your use of these materials

including www.ifa.com website is your acknowledgement that you haveread and understood the full disclaimer as stated above. IFA IndexPortfolios, times series, standard deviations, and returns calculations aredetermined in the Dimensional Returns 2.0 program. Copyright 19992014, DFA, Inc.

13. IFA licenses the use of data, in part, from Morningstar Direct, a thirdparty provider of stock market data. Where data is cited from MorningstaDirect, the following disclosures apply: 2014 Morningstar, Inc. All rightsreserved. The information provided by Morningstar Direct and containedherein: (1) is proprietary to Morningstar and/or its content providers; (2may not be copied or distributed; and (3) is not warranted to be accuratecomplete or timely. Neither Morningstar nor its content providers areresponsible for any damages or losses arising from any use of thisinformation.Updated 10-15-2014. For additional updates see www.ifabt.com.

14. Effective July 1, 2013, Index Funds Advisors, Inc., a CaliforniaCorporation, is now Index Fund Advisors, Inc. a Delaware corporation.

Other Information IFA Considers to be Helpful

It is IFAs advice that the value of having a longer time series exceedsthe concerns of index substitutions over the 1928 to present period. Dueto the very high standard deviations of returns (21.99%) a 40 year ormore sample size of data is recommended to obtain a T-statistic of 2, thaallows a conclusion at a 95% or higher level of certainty. In other words, inIFAs opinion, smaller sample sizes introduce larger errors than the errorsintroduced by stitching together indexes and live data over time. This is theadvice IFA provides to its clients.

Client portfolios are monitored and rebalanced, taking into considerationrisk exposure consistency, transaction costs, and tax ramications to

maintain target asset allocations as shown in the Index Portfolios.

IFA uses tax-managed funds in taxable accounts. The tax-managed funds

are consistent with the indexing strategy, however, they should not beexpected to track the performance of corresponding non-tax-managedfunds in the same or similar indexes. As such, the performance of portfoliosusing tax-managed funds will vary from portfolios that do not utilize thesefunds.

Clients accounts will be rebalanced depending on the uctuation of the

asset classes and the cash ow activity of the client. It is IFAs opinion

that the assumption of rst of the year annual rebalancing is a reasonable

approximation to reality.

IFA is not paid any brokerage commissions, sales loads, 12b1 fees, or anyform of compensation from any mutual fund company or broker dealer. Thonly source of compensation from client investments is obtained from assebased advisory fees paid by the client. More information about advisoryfees, expenses, no-load mutual fund fees, prospectuses for no-load index

mutual funds, brokerage and custodian fees can be found at www.ifacom/admin/fees.asp. Not all IFA clients follow our recommendations, anddepending on unique and changing client and market situations, we maycustomize the construction and implementation of the index portfolios foparticular clients, including the use of tax-managed mutual funds, tax-lossharvesting techniques and rebalancing frequency and precision. In taxableaccounts, IFA uses tax-managed index funds to manage client assets.


33/39iii

Sources and Description of DataSources and Description of Data: The following descriptions of IFAIndexes indicate how indexes are strung together to simulate similar riskand return characteristics back to 1928. This long-term data reduces thepossible errors of interpreting a short-term return as being representativeof other short-term returns. Such errors are especially high for periodsof 20 years or less. When IFA Indexes are shown in Index Portfolios, allreturn data reects a deduction of 0.9% annual investment advisory fee,which is the maximum advisory fee charged by IFA. Unless indicatedotherwise, data shown for each individual IFA Index is shown withouta deduction of the IFA advisory fee. This method is used because the

creation, choice, monitoring and rebalancing of diversied index portfoliosare the services of the independent investment advisor. Therefore, fees arededucted from the whole portfolio data but not the individual index dataLive Dimensional Fund Advisors (DFA) fund data reects the deductionof mutual fund advisory fees, brokerage fees, other expenses incurred bythe mutual funds, incorporates actual trading results, and is sourced fromDFA. Simulated index data also reects DFAs current mutual fund expenseratios for the entire period. Both simulated and live data reect total returnsincluding dividends, except for IFA/NSDQ Index. For updates on sourcesand descriptions of data see www.ifaindexes.com.

January 1928 December 1990: Dimensional US Large Cap Index minus 0.0083%/mo (mutual fund exp ratio)January 1991 April 2010: DFA US Large Company Symbol: DFLCX

May 2010 Present : DFA US Large Company Portfolio Symbol: DFUSX

Time-Series

Construction

Investment Objective of DFA US Large Company Portfolio (DFUSX)The US Large Company Portfolio is a no-load mutual fund designed to approximate the total investment return of the S&P 500 Index. The

portfolio generally invests in the stocks that comprise the S&P 500 Index in approximately the proportions as they are represented in the S&P 500 Index. The S&P 500 Index is comprised of a broad and diverse

group of stocks. Generally, these are the US stocks with the largest market capitalizations and, as a group, they represent approximately 75% of the total market capitalization of all publicly traded US stocks. In seeking

to approximate the total investment return of the S&P 500 Index, Dimensional may also adjust the representation of securities in the US Large Company Portfolio after considering such securities' characteristics and

other factors Dimensional determines to be appropriate.

One Year Three Years Five Years Ten Years Number of Holdings

Weighted Average Market Cap

Aggregated Price-to-Book

Turnover Ratio (as of 10/31/12)

Wtd. Avg Dividend-to-Price

Expense Ratio (as of 10/31/14)

503

$132,247M

2.44

3.00%

2.04%

0.08%

13.53% 20.28% 15.36% 7.69%DFA US Large Company Portfolio

13.69% 20.41% 15.45% 7.67%S&P 500 Index

Average Annual Total Return

All Data as of Dec 31, 2014. Returns include the impact of reinvested dividends and capital gains distributions. For updates see www.ifaindexes.com.

January 1928 February 1993: Dimensional US Large Cap Value Index minus 0.0233%/mo (mutual fund exp ratio)March 1993 Present: DFA US Large Cap Value Portfolio Symbol: DFLVX

Time-Series

Construction

Investment Objective of DFA US Large Cap Value Portfolio I (DFLVX)The US Large Cap Value Portfolio is a no-load mutual fund designed to achieve long-term capital appreciation. The Portfolio is a feeder

portfolio and pursues its objective by investing substantially all of its assets in its corresponding Master Fund, The US Large Cap Value Series. The Master Fund, using a market capitalization weighted approach,

purchases a broad and diverse group of readily marketable securities of large US companies Dimensional determines to be value stocks at the time of purchase. The portfolio invests in securities of US companies with

market capitalizations within the largest 90% of the market universe or larger than the 1,000th largest US company, whichever results in a higher market capitalization break. Dimensional may modify market

capitalization weights and even exclude companies after considering such factors as free float, momentum, trading strategies, liquidity management, and expected profitability. In assessing expected profitability,

Dimensional may consider different ratios, such as that of earnings or profits from operations relative to book value or assets. The market universe is comprised of companies listed on the New York Stock Exchange,

NYSE MKT LLC, Nasdaq Global Market or such other securities exchanges deemed appropriate by Dimensional. Securities are considered value stocks primarily because a company's shares have a high book value

in relation to their market value (BtM).







271

$97,213M

1.43

15.00%

2.18%

0.27%

10.07% 23.53% 17.02% 8.10%DFA US Large Cap Value Portfolio (I)

13.45% 20.89% 15.42% 7.30%Russell 1000 Value Index



January 1928 March 1992: Dimensional US Small Cap Index minus 0.0308%/mo (mutual fund exp ratio)April 1992 Present : DFA US Small Cap Portfolio Symbol: DFSTX

Time-Series

ConstructionIFA U.S. Small Cap Index (SC)

Investment Objective of DFA US Small Cap Portfolio I (DFSTX)TThe US Small Cap Portfolio is a no-load mutual fund designed to achieve long-term capital appreciation. The portfolio seeks to purchase a broad and

diverse group of readily marketable securities of US small cap companies using a market cap weighted approach. The portfolio invests in securities of US companies with market capitalizations within the smallest 10%

of the market universe or smaller than the 1,000th largest US company, whichever results in a higher market capitalization break. Dimensional may modify market capitalization weights and even exclude companies

after considering such factors as free float, momentum, trading strategies, liquidity management, and expected profitability. In assessing expected profitability, Dimensional may consider different ratios, such as that of

earnings or profits from operations relative to book value or assets. The market universe is comprised of US-operating companies listed on the New York Stock Exchange, NYSE MKT LLC, Nasdaq Global Market or

such other securities exchanges deemed appropriate by Dimensional.







2,092

$2,037M

1.96

9.00%

1.12%

0.37%

4.44% 20.70% 17.35% 8.82%DFA US Small Cap Portfolio (I)

4.89% 19.21% 15.55% 7.77%Russell 2000 Index



Jan 1928 - Dec 1981: Dimensional US Micro C ap Index minus 0.0433%/mo (mutual fund exp ratio)Jan 1982 - Present: DFA US Micro Cap Portfolio: DFSCX

Time-Series

ConstructionIFA U.S. Micro Cap Index (MC)

Investment Objective of DFA US Micro Cap Portfolio I (DFSCX)The US Micro Cap Portfolio is a no-load mutual fund designed to achieve long-term capital appreciation. The portfolio seeks to purchase a broad and

diverse group of the securities of US micro cap companies using a market capitalization weighted approach. The portfolio invests in securities of US companies with market capitalizations within the smallest 5% of the

market universe or smaller than the 1,500th largest US company, whichever results in a higher market capitalization break. Dimensional may modify market capitalization weights and even exclude companies after

considering such factors as free float, momentum, trading strategies, liquidity management, and expected profitability. In assessing expected profitability, Dimensional may consider different ratios, such as that of

earnings or profits from operations relative to book value or assets. The market universe is comprised primarily of US operating companies listed on the New York Stock Exchange, NYSE MKT LLC, Nasdaq Global

Market or such other securities exchanges deemed appropriate by Dimensional.







1,734

$1,043M

1.87

12.00%

1.01%

0.52%

2.92% 20.16% 17.53% 7.77%DFA US Micro Cap Portfolio

4.89% 19.21% 15.55% 7.77%Russell 2000 Index



January 1928 Febuary 2000: Dimensional US Targeted Value Index minus 0.0317%/mo (mutual fund exp ratio)March 2000 Present: DFA US Targeted Value Portfolio Symbol: DFFVX

Time-Series

Construction

Investment Objective of DFA Targeted Value Portfolio I (DFFVX)The US Targeted Value Portfolio is designed to achieve long-term capital appreciation. The portfolio uses a market capitalization weighted approach

and generally purchases a broad and diverse group of readily marketable securities of US small and mid cap companies that Dimensional believes to be value stocks at the time of purchase. As of the date of the

prospectus, Dimensional considers for investment companies whose market capitalizations are generally smaller than the 500th largest US company in the market universe. Securities are considered value stocks

primarily because a company's shares have a high book value in relation to their market value. Dimensional may modify market capitalization weights and even exclude companies after considering such factors as free

float, momentum, trading strategies, liquidity management, and expected profitability. In assessing expected profitability, Dimensional may consider different ratios, such as that of earnings or profits from operations

relative to book value or assets. The market universe is comprised of US operating companies listed on the New York Stock Exchange, NYSE MKT LLC, Nasdaq Global Market or such other securities exchangesdeemed appropriate by Dimensional.







1,524

$3,063M

1.34

10.00%

1.36%

0.37%

2.94% 20.62% 16.23% 8.32%DFA US Targeted Value Portfolio (I)

4.22% 18.29% 14.26% 6.89%Russell 2000 Value Index



January 1928 December 1977: 50% IFA US Small Cap Index and 50% IFA Small Cap Value IndexJanuary 1978 December 1993: Dow Jones US Select REIT Index minus 0.0183%/mo (mutual fund exp ratio)Febuary 1993 June 2008: DFA US Real Estate Securities Symbol: DFREXJuly 2008 Present: DFA Global Real Estate Securities Portfolio Symbol: DFGEX

Time-Series

ConstructionIFA Global REIT Index (RE)

Investment Objective of DFA Global Real Estate Securities Portfolio (DFGEX)The Global Real Estate Securities Portfolio is a no-load mutual fund designed to achieve long-term capital appreciation. The portfolio

seeks to achieve exposure to a broad range of securities of US and non-US companies in the real estate industry with a focus on real estate investment trusts or companies that Dimensional considers to be REIT-like

entities by primarily purchasing shares of the underlying funds. The portfolio primarily purchases shares of Dimensional's Real Estate Securities portfolio and International Real Estate Securities portfolio. In addition to

investing in these underlying funds, the portfolio also may invest directly in securities of companies in the real estate industry that are eligible investments for the underlying funds. The portfolio invests in securities

associated with a diverse group of developed and emerging market countries that Dimensional has designated as approved markets. Dimensional may modify market capitalization weights and even exclude companies

after considering such factors as free float, momentum, trading strategies, liquidity management, and expected profitability, as well as other factors that the Advisor determines to be appropriate, given market

conditions. In assessing expected profitability, the Advisor may consider different ratios, such as that of earnings or profits from operations relative to book value or assets. Dimensional also may limit or fix the portfolios

exposure to a particular country or issuer.

One Year Three Years Five Years Inception* Number of Holdings






373

$13,314M

1.83

NA

3.82%

0.32%

22.74% 15.45% 14.16% 5.80%DFA Global Real Estate Sec. Portfolio

21.54% 14.81% 13.20% 4.53%S&P Global REIT Index**


*Inception Date 6/4/08 **Net Dividends All Data as of Dec 31, 2014. Returns include the impact of reinvested dividends and capital gains distributions. For updates see www.ifaindexes.com.


34/39iv

January 1928 December 1969: IFA US Large Value IndexJanuary 1970 December 1974: MSCI EAFE Gross Dividends minus 0.0375%/mo (mutual fund exp ratio)January 1975 June 1993: MSCI EAFE Value Gross minus 0.0375%/mo (mutual fund exp ratio)July 1993 February 1994: LWAS/DFA International High BtM PortfolioMarch 1994 Present: DFA International Value Portfolio Symbol: DFIVX

Time-Series

Construction

Investment Objective of DFA International Value Portfolio I (DFIVX)The International Value Portfolio is a no-load mutual fund designed to achieve long-term capital appreciation. The portfolio pursues its objective

by investing substantially all of its assets in its corresponding Master Fund, The International Value Series. The Master Fund purchases securities of large non-US companies that Dimensional believes to be value

stocks at the time of purchase. Securities are considered value stocks primarily because a company's shares have a high book value in relation to their market value (BtM). Dimensional may modify market capitalization

weights and even exclude companies after considering such factors as free float, momentum, trading strategies, liquidity management, and expected profitability. In assessing expected profitability, Dimensional may

consider different ratios, such as that of earnings or profits from operations relative to book value or assets. The Master Fund intends to purchase securities associated with developed market countries that Dimensional

has designated as approved markets.







545

$51,096M

1.06

15.00%

3.44%

0.43%

-6.99% 10.12% 4.19% 4.59%DFA Intl. Value Index Portfolio

-4.32% 10.47% 5.21% 4.64%MSCI EAFE Index*


*Net Dividends All Data as of Dec 31, 2014. Returns include the impact of reinvested dividends and capital gains distributions. For updates see www.ifaindexes.com.

January 1928 December 1969: IFA US Small Cap IndexJanuary 1970 September 1996: Dimensional International Small Cap Index minus 0.0458%/mo (mutual fund exp ratio)October 1996 Present: DFA International Small Company Portfolio Symbol: DFISX

Time-Series

Construction

Investment Objective of DFA International Small Company Portfolio I (DFISX)The International Small Company Portfolio is a no-load mutual fund designed to achieve long-term capital appreciation. As of the date

of the prospectus, as a fund of funds, the portfolio pursues its objective by investing substantially all of its assets in the Canadian Small Company Series (0-20%), Japanese Small Company Series (10-35%), Asia

Pacific Small Company Series (0-25%), United Kingdom Small Company Series (10-30%) and Continental Small Company Series (25-50%), although it has the ability to invest directly in securities and derivatives.

From time to time, the Advisor may add or remove Underlying Funds in the International Small Company portfolio without notice to shareholders. These Underlying Funds invest in small companies using a market cap

weighted approach in each country or region designated by Dimensional as an approved market for investment. Dimensional may modify market capitalization weights and even exclude companies after considering

such factors as free float, momentum, trading strategies, liquidity management, and expected profitability. In assessing expected profitability, Dimensional may consider different ratios, such as that of earnings or profits

from operations relative to book value or assets.







4,123

$2,013M

1.42

9.00%

2.75

0.53%

-6.30% 12.38% 8.28% 6.68%DFA Intl. Small Cap Index

-7.32% 9.22% 5.49% 3.63%MSCI World ex USA Small Cap Index*


*Price-Only All Data as of Dec 31, 2014. Returns include the impact of reinvested dividends and capital gains distributions. For updates see www.ifaindexes.com.

January 1928 December 1969: IFA Small Cap Value IndexJanuary 1970 June 1981: IFA International Small Company IndexJuly 1981 December 1994: Dimensional International Small Cap Value Index minus 0.0575%/mo (mutual fund exp ratio)January 1995 Present: DFA International Small Cap Value Portfolio Symbol: DISVX

Time-Series

Construction

Investment Objective of DFA International Small Cap Value Portfolio I (DISVX)The International Small Cap Value Portfolio is a no-load mutual fund designed to achieve long-term capital appreciation. The portfolio

pursues its objective, using a market capitalization weighted approach, to purchase securities of small, non-U.S. companies in countries with developed markets that Dimensional determines to be value stocks at the

time of purchase. In general, the higher the relative market capitalization of a small company within an eligible country, the greater its representation in the portfolio. Dimensional may modify market capitalization

weights and even exclude companies after considering such factors as free float, momentum, trading strategies, liquidity management, and expected profitability. Securities are considered value stocks primarily

because a companys shares have a high book value in relation to their market value (book to market ratio). In assessing expected profitability, Dimensional may consider different ratios, such as that of earnings or

profits from operations relative to book value or assets.







2,158

$2,372M

0.93

8.00%

2.46%

0.68%

-4.99% 15.42% 8.43% 7.10%DFA Intl. Small Cap Value

-7.32% 9.22% 5.49% 3.63%MSCI EAFE Small Cap Index*


*Price-Only All Data as of Dec 31, 2014. Returns include the impact of reinvested dividends and capital gains distributions. For updates see www.ifaindexes.com.

January 1928 December 1969: 50% IFA US Large Value

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