should we all own a small cap fund?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
skeptic88
Posts: 63
Joined: Thu Sep 25, 2014 4:43 pm

should we all own a small cap fund?

Post by skeptic88 »

All of my stock holdings are in total stock market and total international stocks, but I've been thinking tha if i want to be truly diversified, shouldn't I own a small cap fund? After all, total stock market index is considered large blend, therefore I am under weight small stocks. Am I missing something?
John3754
Posts: 1289
Joined: Tue Mar 19, 2013 8:56 pm

Re: should we all own a small cap fund?

Post by John3754 »

If you're holding the total market index then you're not under weighting small stocks, you're holding small stocks at their market weight. If you were to buy a small cap fund in addition to the total market fund you would then be over weighting ("tilting towards") small stocks.
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: should we all own a small cap fund?

Post by livesoft »

Yep, we should all overweight small-cap equites. I use mainly VBR, VSS, and FSEVX to do so.
Wiki This signature message sponsored by sscritic: Learn to fish.
John3754
Posts: 1289
Joined: Tue Mar 19, 2013 8:56 pm

Re: should we all own a small cap fund?

Post by John3754 »

livesoft wrote:Yep, we should all overweight small-cap equites. I use mainly VBR, VSS, and FSEVX to do so.
Why?
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: should we all own a small cap fund?

Post by Johm221122 »

Because of my 401, I use 500 index and extended market index .I am over weight extended market index because of higher expected return

John
User avatar
joe8d
Posts: 4545
Joined: Tue Feb 20, 2007 7:27 pm
Location: Buffalo,NY

Re: should we all own a small cap fund?

Post by joe8d »

livesoft wrote:Yep, we should all overweight small-cap equites. I use mainly VBR, VSS, and FSEVX to do so.
I do,Small Cap Index.Small Caps will grow the most.
All the Best, | Joe
Day9
Posts: 1000
Joined: Mon Jun 11, 2012 6:22 pm

Re: should we all own a small cap fund?

Post by Day9 »

The small premium only shows up in the very smallest stocks, like in microcap funds. Vanguard's small funds are basically midcap funds.
I'm just a fan of the person I got my user name from
User avatar
The529guy
Posts: 610
Joined: Fri May 23, 2014 1:08 am

Re: should we all own a small cap fund?

Post by The529guy »

What John3754 said. A Total Stock Market Index fund is neither underweight nor overweight in small cap stocks relative to the total stock market.

Maybe this will be helpful conceptually: http://www.bogleheads.org/wiki/Approxim ... ock_Market
John3754
Posts: 1289
Joined: Tue Mar 19, 2013 8:56 pm

Re: should we all own a small cap fund?

Post by John3754 »

joe8d wrote:Small Caps will grow the most.
You say that as if its a guarantee.
Last edited by John3754 on Wed Oct 01, 2014 8:33 pm, edited 2 times in total.
avalpert
Posts: 6313
Joined: Sat Mar 22, 2008 4:58 pm

Re: should we all own a small cap fund?

Post by avalpert »

What you are asking about isn't diversification but whether you should tilt to try to capture the small factor premium. Plenty of discussions you can peruse to see all sides of that argument but it can be summarized here as no, we shouldn't all own a small cap fund but some of us should - it just depends on risk profile and beliefs.
Calm Man
Posts: 2917
Joined: Wed Sep 19, 2012 9:35 am

Re: should we all own a small cap fund?

Post by Calm Man »

Yes, we all should own a small cap fund. However, I am a sinner and do not. I anticipate a lower return by some percentage for life but I am lazy and like just owning the Vanguard Total Stock Market fund.
toto238
Posts: 1914
Joined: Wed Feb 05, 2014 1:39 am

Re: should we all own a small cap fund?

Post by toto238 »

skeptic88 wrote:All of my stock holdings are in total stock market and total international stocks, but I've been thinking tha if i want to be truly diversified, shouldn't I own a small cap fund? After all, total stock market index is considered large blend, therefore I am under weight small stocks. Am I missing something?
You are diversified, you own literally every single stock in the United States through your Total Stock Market. You own everything, including large caps, mid caps, and small caps. And you own everything according to their size. Each one is weighted according to what the market thinks its value is. You do not need to own anything other than that. You CAN overweight to small-cap if you choose, but that is just what you're doing. Overweighting. You are accepting the risk that small-caps will underperform the market as a whole (which it has done for extended periods of time before).

The reason total stock market index is considered "large blend" is because large-cap companies make up a majority of its value. And that's because large-cap companies make up a majority of the US Stock Market. If the market thought that small-caps were worth more, they would be worth more. But they're not.

So you just need to ask yourself: what do you know that the market doesn't?
Post Reply