When the Best Isn't

For three years running, Lipper has named TIAA-CREF funds as the best fund family in America. If they’re the best, you would expect they would have bested those dull, boring Vanguard index funds or Dimensional Fund’s (DFA) non-predictive asset class funds.

Even though, TIAA-CREF manages some of the best actively managed predictive families of funds, investing with Vanguard or DFA’s non-predictive funds would have made you more money over the past ten years. This according to recent research by economist Larry Swedroe in an Advisor Perspective article.

Swedroe found that TIAA-CREF funds outperformed Vanguard and DFA in two asset classes, large company growth stocks and international equities. They lost out in U.S. small company stocks, U.S. value stocks, and U.S. real estate. 

While the TIAA-CREF funds did quite well, overall, they failed to beat these dull, boring Vanguard and DFA funds that merely try to emulate the global stock market. Here are the 10-year numbers for the diversified five asset class portfolios:

Fund Group

Average Annual Expenses

Average Annual Return







Dimensional (DFA)



Data for 10-year period ending March 31, 2015

Did you spot the biggest reason these well-run funds failed to beat the index or asset class funds? The average annual fees for the Vanguard portfolio were 0.08% (8/100ths of 1%), and DFA’s portfolio cost 0.21% (2/10ths of a percent). That extra half percent charged in TIAA-CREF’s 0.72% (7/10th of 1 percent) fee hurt their net returns

Costs matter. The less you pay in fund expenses to the more you can spend on valuable, personalized advice or, if you are a truly disciplined investor, keep for yourself.

If you were wondering, TIAA is an abbreviation for Teachers Insurance and Annuity Association (founded in 1918) which invested only in bonds. In 1952, stocks were added via the College Retirement Equities Fund or CREF. It wasn’t until 1997 that they started offering mutual funds to the public.

For complete information on funds used and to read the entire paper, please download the Adviser Perspective pdf

Don McDonaldComment