should we all own a small cap fund?
should we all own a small cap fund?
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?
Re: should we all own a small cap fund?
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.
Re: should we all own a small cap fund?
Yep, we should all overweight small-cap equites. I use mainly VBR, VSS, and FSEVX to do so.
Re: should we all own a small cap fund?
Why?livesoft wrote:Yep, we should all overweight small-cap equites. I use mainly VBR, VSS, and FSEVX to do so.
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Re: should we all own a small cap fund?
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
John
Re: should we all own a small cap fund?
I do,Small Cap Index.Small Caps will grow the most.livesoft wrote:Yep, we should all overweight small-cap equites. I use mainly VBR, VSS, and FSEVX to do so.
All the Best, |
Joe
Re: should we all own a small cap fund?
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
Re: should we all own a small cap fund?
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
Maybe this will be helpful conceptually: http://www.bogleheads.org/wiki/Approxim ... ock_Market
Re: should we all own a small cap fund?
You say that as if its a guarantee.joe8d wrote:Small Caps will grow the most.
Last edited by John3754 on Wed Oct 01, 2014 8:33 pm, edited 2 times in total.
Re: should we all own a small cap fund?
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.
Re: should we all own a small cap fund?
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.
Re: should we all own a small cap fund?
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).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?
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?