Why Vanguard Total Stock Market isn’t the best fund...fleet

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victorb
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Why Vanguard Total Stock Market isn’t the best fund...fleet

Post by victorb »

Why Vanguard Total Stock Market isn’t the best fund in the fleet
Does Paul Merriman interpret the data correctly, to make the claims below?

http://www.marketwatch.com/story/why-va ... 2014-12-03

For investors who want everything wrapped into a single package, Vanguard’s Total Stock Market Index fund seems a reasonable way to access U.S. large-cap blend stocks.

And there's plenty to like about Vanguard Total Stock Market Index VTSMX, +0.06% : Low expenses, massive diversification, low turnover and of course — no sales load.

But this fund falls far short of its "total market" title. In fact, the fund gives investors only a small part of what it takes to diversify a portfolio into the best asset classes. This is no small matter, since that diversification accounts for more than 90% of an investor's likely return.

Many times I've talked to investors who wanted to use Vanguard funds to follow my advice about the best way to diversify a portfolio. Time and again I have heard that Vanguard phone advisers tried to convince investors that they should not put more small-cap and value stocks into a portfolios. In my view this is lousy advice that is not supported by the evidence from the past 80 years.
Leeraar
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Re: Why Vanguard Total Stock Market isn’t the best fund...fl

Post by Leeraar »

I wrote a response, but then decided not to contribute to the noise.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
The Wizard
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Re: Why Vanguard Total Stock Market isn’t the best fund...fl

Post by The Wizard »

I tend to agree with the OP and Mr. Merriman.
Low-cost passive index funds are the way to go, yes, but I've not seen conclusive evidence that owning the cap-weighted total domestic stock market is the optimal strategy...
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staythecourse
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Re: Why Vanguard Total Stock Market isn’t the best fund...fl

Post by staythecourse »

This has been asked ad infinitum, i.e. lumping vs. slice/dice.

The whole crux of the argument/ debate is in what someone feels is the meaning of the word "diversification".

If one believes diversify means to hold all the companies to decrease single company risk then can't do much better then TSM due to its tax efficiency (market cap weighted) and low ER.

If one believes diversify means across premiums then they will cite tilting to small and value gets better exposure to such premiums. These folks then choose to slice/ dice.

It is up to you to decide what diversification means to you, but be aware the MOST important aspect is to realize that to generate the returns that are quoted for EITHER plan is to stay the course and NOT bail out over the 80 yrs. period Merriman references.

The bigger question should be how many folks stay the course to even get majority of the ERP nevermind the Small and value premiums.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
Twins Fan
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Re: Why Vanguard Total Stock Market isn’t the best fund...fl

Post by Twins Fan »

I agree with the article that there is little difference between total stock and the S&P 500. Of course we all know that.

I don't agree that "full diversification" or whatever it's hinting at without actually explaining what it means equals tilting to small value or value. I call that a tilt. To capture all that extra return would depend on how much one tilts that way.

I think Vanguard's advice is fine for the average investor to simply use the total stock index, so as not to tinker and change things around... capture the market... stay the course... all that. Of course if I were competing with Vanguard to try and bring in investors to my side, I may say something different also. :wink: :happy
Triple digit golfer
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Re: Why Vanguard Total Stock Market isn’t the best fund...fl

Post by Triple digit golfer »

Paul Merriman wrote:But this fund falls far short of its "total market" title.
There is a lot of nonsense in that article, but this takes the cake. This quote is blatantly false. By definition, the fund invests in the "total market." It seems that Mr. Merriman wishes to redefine "total market" to mean something other than "total market."
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