The Discipline Fund could be appropriate for you for many reasons:
1) Extremely broad diversification.
The Discipline Fund is highly diverse with exposure to over 7,500 underlying stocks and bonds.
2) Low fees and tax efficiency.
With a net expense ratio of 0.39% combined with the tax efficiency of the ETF wrapper, the Discipline Fund is a very tax and fee-efficient way to get broad, dynamic diversification to the financial markets. 1
We are big fans of low-fee, tax-efficient ETFs and index funds. However, a drawback of most index funds and multi-asset mutual funds is that they distribute capital gains when they rebalance, something the Discipline Fund is able to avoid.
3) Algorithmic countercyclical rebalancing.
While most index funds rebalance in a procyclical and/or discretionary manner, the Discipline Fund is a systematic fund that rebalances to account for how risky the stock market is across time.
It's long been known that there is a "rebalancing bonus" when owning stocks and bonds, but most funds don't rebalance to fully account for stock market risk. This leaves them over exposed to stocks at the worst times. The Discipline Fund takes advantage of the rebalancing bonus while also trying to optimize for behavioral alpha to help investors stay fully invested without the urges to make mistakes at the most inopportune times. *
In a 2018 interview investment legend John Bogle
mentioned that he would sometimes rebalance his portfolio in a countercyclical manner to control for his own behavioral risks. We are proponents of the entire John Bogle approach to investing and the Discipline Fund is one of the only ways investors can now take advantage of the actual methodology that Bogle implemented in his own portfolio.
4) Behavioral alpha.
Investors spend most of their time chasing yesterday's best strategies rather than finding an appropriate strategy that they can stick with. In doing so, they generate lower returns by buying yesterday's best performing strategies and selling yesterday's worst performing strategies. We believe investors should work with financial planners to find the appropriate asset allocation combined with a behaviorally sustainable strategy so they can focus on what matters in life.
By rebalancing away from equities when stocks are perceived to be riskier, we are increasing potential behavioral alpha by reducing the risk of making psychological mistakes.
This reduces investors' urge to move all in or all out of certain asset classes. You can worry less about whether stocks are overvalued or if bonds might expose you to credit risk. By owning these assets in a countercyclical asset rebalancing portfolio, you can remain in the market without having to worry about whether you're in or out of one market by too much.
We want to make it easier and simpler to manage your finances. The financial industry has mastered the art of selling complexity for a high fee with portfolios that consistently contain 10, 20 or even hundreds of positions. The Discipline Fund is a sophisticated product in a simple wrapper that can help streamline financial planning and financial management by simplifying your portfolio.
6) Expert Bond Management.
Many investors are intimidated by the bond market and scared of low interest rates and/or high inflation. The Discipline Fund is managed by Cullen Roche, a well known inflation and interest rate expert. Cullen constructed the Discipline Fund to have a more dynamic bond portfolio when compared to simple Bond Aggregate funds, with the goal of targeting increased income and superior risk management over time by reducing credit risk in the bond allocation when the economy is in a late cycle credit risky period.
* See, Sharpe, William - http://www.efficientfrontier.com/ef/996/rebal.htm
The Fund's gross expense ratio is 0.44% (including underlying fund costs), however, the Fund’s investment adviser has contractually agreed to waive all or a portion of its management fee for the Fund until at least one year from the date of the Fund’s commencement of operations to the extent necessary to offset all Acquired Fund Fees and Expenses.