Approximating Total Stock Market with Small-Cap Growth

[RobInCT]

I was hoping someone could tell me what ratio of Fidelity Spartan 500 Index to Vanguard Small-Cap Growth Index could be used to approximate TSM.

My 401k isn't bad overall, but it doesn't have any TSM-like options, so I have to build my own, and these are really the only two low-fee index funds available to me.

I consulted the wiki but didn't see this precise combination listed.

Thanks!

[dbr]

Are you sure the only other low cost choice is small cap growth. That seems very odd.

In any case one would not attempt to complement the S&P 500 with with SCG to mimic TSM. One might do it with a small cap index fund, more often with a so-called extended markets index fund. It may not be all that important to try to get to TSM if the funds are not available. Do you have other investment accounts or could you create them, such as a Roth IRA at Vanguard if that fits your situation?

[nisiprius]

I was hoping someone could tell me what ratio of Fidelity Spartan 500 Index to Vanguard Small-Cap Growth Index could be used to approximate TSM.

My 401k isn't bad overall, but it doesn't have any TSM-like options, so I have to build my own, and these are really the only two low-fee index funds available to me.

I consulted the wiki but didn't see this precise combination listed.

Just to be clear: you do not have the Fidelity Spartan Extended Market Index fund, FSEMX available? Because that would be the right tool for the job..

I once had success in getting a mutual fund--specifically the Fidelity U. S. Bond Index Fund (FBIDX)--added to my employer's 401(k) choices simply by writing a letter to HR and asking for it. I didn't say anything about its being great, simply that I wanted it and my reasons (I preferred to "roll my own" portfolio than to use a Freedom fund, and they had no core bond fund). Next year, it was added.

In your case, do what you have to do now, but at least consider asking your employer to add FSEMX. Explain that you want to invest in the total market, not just the S&P 500, and you currently have no way to do it, and therefore you would like them to added EITHER Fidelity Spartan Total Stock Market Index (FSTMX) OR Fidelity Spartan Extended Market Index (FSEMX).

Don't bother to explain why you want to invest in the total market, just say you want to do it. HR may or may not understand investing theories, but they are sure to understand "employees have asked for it."

[nydad]

You can use the morningstar instant-xray to model this out:

Code: Select all

TSM =
24 24 24
6 6 7
3 3 3

Code: Select all

85% FUSEX / 15% VISGX
24 25 25
4 5 6
1 3 7

As you can see, it's not quite there - there is an overweight on small cap growth stocks, and small cap more generally, but if you really want to model TSM and you only have those two to choose, that's probably as close as you will get.

[bogleblitz]

If extended market index exist, what is a good ratio to replicate TSM.

[camper]

@ Bogleblitz
From the wiki

Looks like a 80/20 mix works.

[peppers]

If extended market index exist, what is a good ratio to replicate TSM.

Take a look,

https://personal.vanguard.com/us/funds/ ... statistics

[grabiner]

I was hoping someone could tell me what ratio of Fidelity Spartan 500 Index to Vanguard Small-Cap Growth Index could be used to approximate TSM.

My 401k isn't bad overall, but it doesn't have any TSM-like options, so I have to build my own, and these are really the only two low-fee index funds available to me.

To get a good match, you'll need an equal amount of Small-Cap Value Index in your IRA or taxable account and Small-Cap Growth Index in the 401(k). 80% 500 index, 10% Small-Cap Growth, and 10% Small-Cap Value is a reasonably good match.

[RobInCT]

Thanks, nydad for the math. I see how it's suboptimal, but it may be the best I can do.

Are you sure the only other low cost choice is small cap growth. That seems very odd.

In any case one would not attempt to complement the S&P 500 with with SCG to mimic TSM. One might do it with a small cap index fund, more often with a so-called extended markets index fund. It may not be all that important to try to get to TSM if the funds are not available. Do you have other investment accounts or could you create them, such as a Roth IRA at Vanguard if that fits your situation?

I agree it is odd. No clue why it is that way. But here are my non-large cap domestic stock choices:

Royce Total Return: expense ratio 1.03
Vanguard Small-cap growth: ER .08

No midcap, no extended market. I appreciate the suggestion to use other resources to balance, and that is in fact what I have done up to now, holding Vanguard extended market in Roth IRA, but that space is now full, mostly with bonds and international because my 401k options for those are also pretty bad:

Dodge & Cox International ER .64
Fidelity Diversified International ER .84

Fidelity Managed Income ER .71
Fidelity Government Income ER .45
Morgan Stanley Institutional Core Plus Fixed Income ER .63
Pimco Total Return .46

I currently hold Total Bond Index, Total International, and Extended Market in my Vanguard IRA and Spartan 500 in my 401k. Problem is, since I am still relatively young, new contributions are a significant portion of my portfolio every year, and with $17,500 going into the 401k, and only $5500 into Roth, things get out of whack really fast! I am going to be way too heavy in domestic large-cap very quickly if I don't find SOMETHING else in my 401k that I can live with. That is why I was going for the small-cap growth with the terrific ER, but I obviously welcome other suggestions.

Good point about asking my company to add more funds. I'll look into that as a more long-range solution.

[dbr]

I currently hold Total Bond Index, Total International, and Extended Market in my Vanguard IRA and Spartan 500 in my 401k. Problem is, since I am still relatively young, new contributions are a significant portion of my portfolio every year, and with $17,500 going into the 401k, and only $5500 into Roth, things get out of whack really fast! I am going to be way too heavy in domestic large-cap very quickly if I don't find SOMETHING else in my 401k that I can live with. That is why I was going for the small-cap growth with the terrific ER, but I obviously welcome other suggestions.

Good point about asking my company to add more funds. I'll look into that as a more long-range solution.

In your situation it is perfectly ok to invest in the S&P 500 and let it go.

[RobInCT]

In your situation it is perfectly ok to invest in the S&P 500 and let it go.

Really? How is that better? If I do that, my portfolio will be without 3 categories: mid-cap, small-cap value or small-cap growth. If I put some into small-cap growth, I'll just be without 2: mid-cap and small-cap value? How is that not better than being without 3?

[rkhusky]

Dodge & Cox International is not too bad of a fund. You could put that in your 401K and buy more Extended Market in the IRA.

Or you could put PIMCO Total Return in the 401K in place of Total Bond in IRA.

[gt4715b]

Dodge & Cox International is not too bad of a fund. You could put that in your 401K and buy more Extended Market in the IRA.

Or you could put PIMCO Total Return in the 401K in place of Total Bond in IRA.

This seems to be the best approach.

You have decent funds for international developed and bonds, so invest in those in the 401k and in the IRA invest in the extended market fund AND the emerging market fund (since you currently have no exposure). So it would be:

401k:
Spartan 500
Dodge & Cox International
Pimco Total Return

IRA:
Vanguard Extended Market Index Fund
Vanguard Emerging Markets Stock Index Fund

The percentages should pretty much work out since S&P500/Extended Markets is like a 80/20 split and Developed/Emerging is 76/24.

EDITED TO FIX MARKET SPLIT PERCENTAGES

[rkhusky]

Dodge & Cox International is not too bad of a fund. You could put that in your 401K and buy more Extended Market in the IRA.

Or you could put PIMCO Total Return in the 401K in place of Total Bond in IRA.

This seems to be the best approach.

You have decent funds for international developed and bonds, so invest in those in the 401k and in the IRA invest in the extended market fund AND the emerging market fund (since you currently have no exposure). So it would be:

401k:
Spartan 500
Dodge & Cox International
Pimco Total Return

IRA:
Vanguard Extended Market Index Fund
Vanguard Emerging Markets Stock Index Fund

The percentages should pretty much work out since S&P500/Extended Markets is like a 80/20 split and Developed/Emerging is 76/24.

EDITED TO FIX MARKET SPLIT PERCENTAGES

Dodge & Cox Int'l has emerging markets. But it doesn't have Small Int'l, so you could buy some of Vanguard's FTSE Small Cap.

[rkhusky]

Assuming you want 80/20 stock/bond, 70/30 US/Int'l, 80/20 Large/Small, and have a 75/25 401K/IRA ratio, you could set up a portfolio like this:

401K
60% Spartan 500
25% Dodge & Cox Int'l
15% Pimco Total Return

IRA
45% Vanguard Extended Market
20% FTSE All World Ex-US Smallcap
35% Vanguard Total Bond