Diversifying for the Domestic Market

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MNGardetto
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Diversifying for the Domestic Market

Post by MNGardetto »

I currently have very little in small cap domestic stocks. My only real domestic component is a Total Market ETF. SCHB, since I trade Schwab ETFs.

I printed off the prospectuses for all their funds, and will read through them, but I am wondering if it would be better to do a variety of the Large-Carp, LC Growth, and LC Value instead. These 4 funds seem so awfully similar in Top 10% holdings and past performance that I am unsure of their true function and how I can use them. I assume if I went that route that I'd also need to invest in the mid-cap fund as well.

Link to the fund names and a hyperlink to their information.
http://www.schwab.com/public/schwab/inv ... chwab_etfs
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kenyan
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Re: Diversifying for the Domestic Market

Post by kenyan »

Without digging into each of these funds -

Buying Large Cap Blend, Value, and Growth funds does not give you diversification over a total market fund. All it gives you is a large cap tilt/concentration, since you are omitting small-caps and mid-caps. Buying a mid-cap fund to partially remedy that doesn't really fix the problem. As you noted, the various large-cap holdings will overlap.

The best diversification you can get out of what you have listed is just to buy the Total Market ETF for your domestic component. There is no real point, other than unnecessary complication, to buying the three LC funds you reference. They will likely have higher fees, higher turnover, and no diversification benefit.
Retirement investing is a marathon.
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kenyan
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Re: Diversifying for the Domestic Market

Post by kenyan »

Note - you mention small-caps - do you not want to hold any Small Caps (for whatever reason)? If you really dislike Small Caps, then you could just purchase Large Cap Blend and Mid Cap Blend funds. The MCB fund will likely contain some Small Caps, FYI. Adding LCV and LCG funds to that mix does not add diversification.
Retirement investing is a marathon.
YDNAL
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Re: Diversifying for the Domestic Market

Post by YDNAL »

MNGardetto wrote:I currently have very little in small cap domestic stocks. My only real domestic component is a Total Market ETF. SCHB, since I trade Schwab ETFs.

I printed off the prospectuses for all their funds, and will read through them, but I am wondering if it would be better to do a variety of the Large-Carp, LC Growth, and LC Value instead. These 4 funds seem so awfully similar in Top 10% holdings and past performance that I am unsure of their true function and how I can use them. I assume if I went that route that I'd also need to invest in the mid-cap fund as well.

Link to the fund names and a hyperlink to their information.
http://www.schwab.com/public/schwab/inv ... chwab_etfs
Gardetto,

Your OP is a little weird.
1. The subject: Diversifying for the Domestic Market.
2. You own a Total US Mkt fund.
3. You looked at 3 US Large Cap funds (Large, Large Growth, Large Value).
4. If you consider something from #3, would also need Mid Cap fund as well.

No where do you state what you are trying to do... what is it that you are trying to do?
Last edited by YDNAL on Tue Aug 21, 2012 12:44 pm, edited 1 time in total.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
Topic Author
MNGardetto
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Re: Diversifying for the Domestic Market

Post by MNGardetto »

YDNAL wrote:
MNGardetto wrote:I currently have very little in small cap domestic stocks. My only real domestic component is a Total Market ETF. SCHB, since I trade Schwab ETFs.

I printed off the prospectuses for all their funds, and will read through them, but I am wondering if it would be better to do a variety of the Large-Carp, LC Growth, and LC Value instead. These 4 funds seem so awfully similar in Top 10% holdings and past performance that I am unsure of their true function and how I can use them. I assume if I went that route that I'd also need to invest in the mid-cap fund as well.

Link to the fund names and a hyperlink to their information.
http://www.schwab.com/public/schwab/inv ... chwab_etfs
Gardetto,

Your OP is a little weird.
1. The subject: Diversifying for the Domestic Market.
2. You own a Total US Mkt fund.
3. You looked at 3 US Large Cap funds (Large, Large Growth, Large Value).
4. If you consider something from #3, would also need Mid Cap fund as well.

No where do you state what you are trying to do... what are you trying to do?
I was simply wondering if there is an advantage to owning LC/MC Funds separately over a total market fund.

The various LC Blend, Growth, and Value funds all seem fairly popular. In my situation I do think the total market fund is the best way to go but people in other situations like these other funds, why is that and what is their situation?
Last edited by MNGardetto on Tue Aug 21, 2012 12:47 pm, edited 1 time in total.
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Aptenodytes
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Re: Diversifying for the Domestic Market

Post by Aptenodytes »

MNGardetto wrote: I was simply wondering if there is an advantage to owning LC/MC Funds separately over a total market fund.

The various LC Blend, Growth, and Value funds all seem fairly popular. My other question is what are their advantages. In my situation I do think the total market fund is the best way to go but people in other situations like these other funds, why is that and what is their situation?
Sounds like you have some basic reading to catch up on. There is no premium among large or mid cap stocks, so no need to tilt there. If you want to tilt within your domestic holdings, you want to look at growth, value, small, small-growth and small-value.

Until you sort this out I'd recommend sticking with a total market fund.
YDNAL
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Re: Diversifying for the Domestic Market

Post by YDNAL »

MNGardetto wrote:
YDNAL wrote:No where do you state what you are trying to do... what are you trying to do?
I was simply wondering if there is an advantage to owning LC/MC Funds separately over a total market fund.

The various LC Blend, Growth, and Value funds all seem fairly popular. My other question is what are their advantages. In my situation I do think the total market fund is the best way to go but people in other situations like these other funds, why is that and what is their situation?
You own Schwab U.S. Broad Market ETF (SCHB) which holds 1,828 stocks by Market Value. According to Morningstar, these stocks are classified: 72% Large Caps, 21% Mid Caps, 7% Small Caps.
http://portfolios.morningstar.com/fund/ ... en-us[list][*]For many people, this is ALL they want to own Domestically - a representative sample of the US Market at Market Weights.[*]For many other people, they rather own something different than that. In order to do it, they must select and mix different Funds.[/list]This is actually the source of endless conversations and debates between the different groups of people in each bullet point above.

Have you seen the reading list?
http://www.bogleheads.org/readbooks.htm/url

Have you seen the Bogleheads wiki?
http://www.bogleheads.org/wiki/FAQ_Small_cap_funds
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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kenyan
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Re: Diversifying for the Domestic Market

Post by kenyan »

MNGardetto wrote:
I was simply wondering if there is an advantage to owning LC/MC Funds separately over a total market fund.

The various LC Blend, Growth, and Value funds all seem fairly popular. In my situation I do think the total market fund is the best way to go but people in other situations like these other funds, why is that and what is their situation?
The answer to your first (implied) question is: no.

The answer(s) to your second question is any number of things.

LC Blend: some people like to stick with companies they know. The S&P 500 is basically a LCB fund, with a smattering of Mid Caps.

LC Value: some people (particularly those who concern themselves with factor loadings and Fama/French analysis) believe that Value offers not only a historical premium, but one that will continue in the future.

LC Growth: some people, such as Dave Ramsey, like growth stocks - these stocks are those that tend to be more "in favor" and have higher valuations. Some believe that the Fama/French results will not continue.

Aside from reasons such as these, people don't always have great choices in accounts such as their 401k. They may be trying to shore up a sector that they don't have a good choice in elsewhere. Others will just invest based upon the last 1/5/10 years of returns or whatever tickles their fancy. Who knows whatever rationale people will use.
Retirement investing is a marathon.
YDNAL
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Re: Diversifying for the Domestic Market

Post by YDNAL »

kenyan wrote:
MNGardetto wrote:I was simply wondering if there is an advantage to owning LC/MC Funds separately over a total market fund.
The answer to your first (implied) question is: no.
I would ignore that quick response.

A more accurate response is that it depends on expected Asset Class return and how accurately expected returns materialize. The Boglehead Wiki shows how 3 specific individuals see expected returns.
http://www.bogleheads.org/wiki/Historic ... ed_Returns

Now, Gardetto, you continue to say LC/MC as if that is something unique in dividing the Domestic Equity market. It would be applicable, for instance, IF you were considering an S&P 500 Fund (Large Blend) together with an Extended Market Fund (Mid Cap weighted). My suggestion again is to pick up a couple of good books.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
igghy
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Re: Diversifying for the Domestic Market

Post by igghy »

How much MC/SC does one need to add to compensate S&P holdings to similate the total market? About 30% of my domestic equity holding is S&P.
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Aptenodytes
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Re: Diversifying for the Domestic Market

Post by Aptenodytes »

igghy wrote:How much MC/SC does one need to add to compensate S&P holdings to similate the total market? About 30% of my domestic equity holding is S&P.
Don't you have access to a total market fund?
igghy
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Re: Diversifying for the Domestic Market

Post by igghy »

I do. The rest 70% is in Total Market. I just can't sell S&P because of the capital gains at the moment.
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Aptenodytes
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Re: Diversifying for the Domestic Market

Post by Aptenodytes »

igghy wrote:I do. The rest 70% is in Total Market. I just can't sell S&P because of the capital gains at the moment.
Ahh, I see. Google is your friend here:

http://www.bogleheads.org/wiki/Approxim ... ock_Market
igghy
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Re: Diversifying for the Domestic Market

Post by igghy »

Thank you for the chart. It contains everything.
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abuss368
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Re: Diversifying for the Domestic Market

Post by abuss368 »

A total market fund is all you would ever need.

Forget the slice and dice with multiple funds. Inefficient and complex with no additional benefits.
John C. Bogle: “Simplicity is the master key to financial success."
Default User BR
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Re: Diversifying for the Domestic Market

Post by Default User BR »

abuss368 wrote:A total market fund is all you would ever need.
Forget the slice and dice with multiple funds. Inefficient and complex with no additional benefits.
1. The OP explained the reason for separate holdings.
2. This is your opinion, not a fact.


Brian
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Re: Diversifying for the Domestic Market

Post by abuss368 »

MNGardetto wrote:I currently have very little in small cap domestic stocks. My only real domestic component is a Total Market ETF. SCHB, since I trade Schwab ETFs.

I printed off the prospectuses for all their funds, and will read through them, but I am wondering if it would be better to do a variety of the Large-Carp, LC Growth, and LC Value instead. These 4 funds seem so awfully similar in Top 10% holdings and past performance that I am unsure of their true function and how I can use them. I assume if I went that route that I'd also need to invest in the mid-cap fund as well.

Link to the fund names and a hyperlink to their information.
http://www.schwab.com/public/schwab/inv ... chwab_etfs
Hi MNGardetto,

When in doubt, or second guessing our allocations, it is often better to do nothing. I would consider keeping a total market fund in your portfolio and not fall into the trap of multiple funds, slice and dice, rebalancing, and additional complexity.

Total Market funds have been referred to as the efficient frontier.

Taylor Larimore often provides a link to another site that explains a total market approach. This is a fantastic read and I recommend it. Perhaps he will respond here and provide that information.

At the end of the day, you may be able to do better, but you could do a lot worse.

Kind regards.
John C. Bogle: “Simplicity is the master key to financial success."
gkaplan
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Re: Diversifying for the Domestic Market

Post by gkaplan »

Default User BR wrote:abuss368 wrote:A total market fund is all you would ever need.
Forget the slice and dice with multiple funds. Inefficient and complex with no additional benefits.


1. The OP explained the reason for separate holdings.
2. This is your opinion, not a fact.
Agree totally.
Gordon
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