Meet with PWL Capital: https://pages.pwlcapital.com/en-ca/contact-us?utm_source=content&utm_medium=youtube&utm_campaign=rationalreminder_yt Avoid Online Scams: https://pwlcapital.com/stay-safe-online/ What if “just buying the market” isn’t the end of the story? In this episode, we are joined by Gerard O’Reilly, Co-CEO and Co-CIO of Dimensional Fund Advisors, for a deep dive into what really drives net investment returns. Gerard returns to the Rational Reminder podcast to explain the key principles that differentiate Dimensional’s approach from traditional indexing—and why implementation, flexibility, and detail matter so much more than investors might think. We explore the concept of hidden costs in index investing, how index reconstitution and trading frictions erode returns, and the nuanced decisions that shape a market portfolio: defining the market, excluding low-returning stocks, optimizing tax efficiency, and more. Gerard breaks down how Dimensional’s rules-based, evidence-backed process improves outcomes through smart exclusions (like IPOs and high asset-growth firms), precise trading, securities lending, and better handling of corporate actions. From the dangers of chasing low fees to the surprising benefits of thoughtful execution, this conversation is a masterclass in next-level investing. Timestamps: 0:00:00 Intro 0:07:35 Articulating Dimensional’s similarities and differences to market cap weighted index funds 0:09:54 The components of net returns for an investment product 0:14:29 The decisions that go into defining “the market” when creating an investment product 0:19:54 How much more pronounced these differences can be when the investment universe is something like small caps, or small cap value stocks 0:24:44 How Dimensional decides which securities to exclude from it, once the universe for a product is defined 0:30:26 Why IPOs are excluded 0:33:29 The proportion of the market that is excluded in a typical broad market Dimensional portfolio like a Core fund 0:39:04 How exclusions like this are different from traditional active fund management 0:45:55 How Dimensional compares to securities lending revenue for other product providers 0:50:21 How Dimensional deals with things like buybacks and new share issuance 0:52:45 How empirical realities like momentum, short-term reversals, and high securities lending fees affect expected returns 0:58:43 The main ways that trading costs affect net returns 1:02:21 How much exposure index funds, which have pretty low turnover, would have to trading costs 1:05:59 Whether there is currently too much emphasis on fees relative to the other components of net returns 1:16:44 How all of the information discussed comes together when building a portfolio with tilts toward stocks with higher expected returns 1:21:03 What Gerard is most excited about at Dimensional right now Links From Today’s Episode: Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/ Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/ Rational Reminder on X — https://x.com/RationalRemind Rational Reminder on TikTok — www.tiktok.com/@rationalreminder Rational Reminder on YouTube — https://www.youtube.com/channel/ Rational Reminder Email — info@rationalreminder.ca Benjamin Felix — https://pwlcapital.com/our-team/ Benjamin on X — https://x.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Cameron Passmore — https://pwlcapital.com/our-team/ Cameron on X — https://x.com/CameronPassmore Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/ Gerard O’Reilly — https://www.dimensional.com/us-en/bios/gerard-k-oreilly Dimensional Fund Advisors: https://www.dimensional.com/ Episode 322: Marco Sammon — https://rationalreminder.ca/podcast/322Marco Sammon Episode 198: Gerard O’Reilly — https://rationalreminder.ca/podcast/198