Now in Wiki: Extended Market Index Fund

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Now in Wiki: Extended Market Index Fund

Postby Barry Barnitz » Tue Mar 13, 2012 3:37 pm

Hi:


Fulfilling the wiki directive to be bold, we have a new page devoted to the concept of an Extended Market Index Fund.

Extended Market Index Fund - Bogleheads.

As always, comments and improvements are essential and more than welcome.

regards,
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Re: Now in Wiki: Extended Market Index Fund

Postby chaz » Wed Mar 14, 2012 12:37 am

thanks Barry.
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Re: Now in Wiki: Extended Market Index Fund

Postby Kevin M » Wed Mar 14, 2012 4:24 am

Very nice! Captured the essential points, and I didn't see anything I disagree with.

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Re: Now in Wiki: Extended Market Index Fund

Postby The Wizard » Wed Mar 14, 2012 4:45 am

The write-up is OK as far as it goes, but I disagree that the only (or even the primary) purpose of such a fund is to supplement an S&P 500 fund to get the total stock market.

It's also a FINE vehicle for folks who believe that small and mid-cap companies have potential to out-perform large companies, over time.
Compare plots of VEXAX vs VFIAX and draw your own conclusions...
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Re: Now in Wiki: Extended Market Index Fund

Postby Kevin M » Wed Mar 14, 2012 5:22 am

The Wizard wrote:The write-up is OK as far as it goes, but I disagree that the only (or even the primary) purpose of such a fund is to supplement an S&P 500 fund to get the total stock market.

It's also a FINE vehicle for folks who believe that small and mid-cap companies have potential to out-perform large companies, over time.
Compare plots of VEXAX vs VFIAX and draw your own conclusions...

That's a good point, but I usually think of using a small-cap or small-cap value index fund for that. Certainly if you wanted to tilt toward small/mid, and didn't have access to a good small-cap index fund but did have access to extended market, then it would be a fine way to do so, as you say.

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Re: Now in Wiki: Extended Market Index Fund

Postby nisiprius » Wed Mar 14, 2012 7:56 am

The Wizard wrote:The write-up is OK as far as it goes, but I disagree that the only (or even the primary) purpose of such a fund is to supplement an S&P 500 fund to get the total stock market. It's also a FINE vehicle for folks who believe that small and mid-cap companies have potential to out-perform large companies, over time. Compare plots of VEXAX vs VFIAX and draw your own conclusions...
I contributed to the article, and really this is the point at issue. Is an extended market index fund "for" extending an existing S&P 500 fund, or is it a good vehicle for those who wish to create a tilt away from large-cap?

If this were WIkipedia this would be settled by give-and-take between editors, but here there isn't the critical mass of editors to make that work too well, so I'm going to issue a mild and friendly challenge. Can anyone find or point to anything you consider authoritative--an investing book or article or web posting by someone you consider an expert, or articles published by mutual fund companies that offer these funds--that suggests using an extended market index fund as an investment in itself?

An authority who advocate a broad tilt away from large-caps? Or recommends overweighting of both mid and small-caps in proportion to their representation in the extended market index? Or recommends Extending Market Index as a possible single core equities holding within a simple portfolio? As opposed to recommending using funds that cleanly target a single style box, with allocations informed by modern portfolio theory?

The interesting question, which I don't know how answer without some survey on "what's in 401(k) plans," is: what do you do if you want a small-cap tilt, and your 401(k) has a low-expense-ratio extended market index fund, and also has the usual zoo of active funds including some medium-expense active funds that specifically target mid-cap and small-cap and small-cap value?

I would personally support adding things to the article that say it's a good vehicle for "folks who believe that small and mid-cap companies have potential to out-perform large companies" if and only if it can be done by referencing a reasonable authority. Even something as flaky as a mutual fund company's own magazine or marketing literature.

Can anyone cite an authority who recommends using an extended market index fund in some way other than extending an existing S&P 500 holding?
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Re: Now in Wiki: Extended Market Index Fund

Postby partisan » Wed Mar 14, 2012 8:01 am

I use the extended market in my 401k to gain exposure to midcaps. I compared the extended market against every midcap fund offered and in each case the extended market did better. This could be due to having a bit of small caps as well, but the style boxes were the same, and some of the midcap funds have small caps as well. I figured why pay 1% when I can pay .1% for basically the same exposure.
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Re: Now in Wiki: Extended Market Index Fund

Postby rkhusky » Wed Mar 14, 2012 8:06 am

The US Government's Thrift Savings Plan only offers for equities an S&P Fund (C), an Extended Market Fund (S), and a Developed Markets Fund (I) (minus US & Canada).
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Re: Now in Wiki: Extended Market Index Fund

Postby The Wizard » Wed Mar 14, 2012 10:04 am

nisiprius wrote:I would personally support adding things to the article that say it's a good vehicle...

On reflection, perhaps it's best to leave it as is. It's just as well not to encourage additional people to pile into the low-cap 20% of the market in search of slightly better return. Too many people chase the same well-performing target, then it sinks to mediocrity due to overload.

Take small-cap VALUE tilting for example. Widely reputed to have an advantage (probably by Money magazine among others), we see that lately, the SV sector has UNDER-performed; small GROWTH has done better. Anyhow, enough said...
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Re: Now in Wiki: Extended Market Index Fund

Postby nisiprius » Wed Mar 14, 2012 10:30 am

Well, look. I have a point of view but I'm also being sincere. And I didn't mean for "cite a source" to be an empty hostile challenge.

Does someone want to wordsmith a proposed sentence or two to add to the article along the lines of "If you are forced to choose from a limited selection, as in a 401(k) plan, and your investment philosophy calls for underweighting large-cap stocks, an extended market index fund could be the best among a poor set of choices."

And, are there any slice-and-dice mavens who would want to weigh in: if you wanted to produce an MPT-informed tilted portfolio, and the only two choices available were an S&P 500 fund and an Extended Market Index fund, what would be some kind of calculated or suggested allocation between the two? Less than 80 for the S&P 500, more than 20 for the extended market index fund... but how much less?

I have nothing against midcaps--uh, um, I actually held a midcap fund in my 401(k) for some years because, uh, the numbers in the 1-3-5-10 returns table were higher for that fund :( and (worse yet) got nothing but good from it. But I think it's interesting that the Coffeehouse Portfolio, and I don't think I've seen an MPT-informed slice-and-dice Fama-French portfolio suggestion that singled out midcaps for special attention.
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Re: Now in Wiki: Extended Market Index Fund

Postby paullees » Wed Mar 14, 2012 12:20 pm

I actually emailed Bill on mid-caps after reading coffee house investor.

I must admit at the time I was swayed by recent returns.

He answered that they were generally covered in the overlap between large and small cap funds.

But if you have an S&P and a small cap I don't really agree with this.

Are mid caps a bit of a forgotten band? Buy total market and you get them.....
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Re: Now in Wiki: Extended Market Index Fund

Postby The Wizard » Wed Mar 14, 2012 1:16 pm

There used to be Mel's Unloved MidCaps a few years back, before my time here, actually.
I'm not sure what line of thinking was given on that and I'm kinda busy today to try to track it down...
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Re: Now in Wiki: Extended Market Index Fund

Postby nisiprius » Wed Mar 14, 2012 2:02 pm

It's here, maybe. But I'm not clear on what Mel was actually saying. The position is one specifically in favor of mid-caps, though, even hypothetically making them the sole equity holding. It was not a position of "hold the entire market but underweight the S&P 500."

But I can't tell whether Mel is actually suggesting implementing a heavy tilt toward mid-caps, or wondering why there's so little talk about them, just conducting a thought experiment, or saying isn't clear to me. Mel is asking:
What would be your thoughts on simply having one's domestic portfolio made up entirely of mid caps, Larry? It would seem to allow one to have their portfolio on autopilot, without the need for constant rebalancing. It should also capture the "sweet spot" of the market, and exhibit characteristics of the combined 50/50 [large-cap and small-cap] split.
But my point is, if you actually wanted to implement this, wouldn't you use a mid-cap fund, rather than completion index fund? And the 401(k) plans employers have offered always included focussed mid-cap and small-cap fund choices, though usually actively managed and with high-but-not-vomitrocious ERs.
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Re: Now in Wiki: Extended Market Index Fund

Postby ourbrooks » Wed Mar 14, 2012 2:32 pm

I think that the article needs a caveat to the effect that the Extended Market Fund is for those who use the S&P indices. The MSCI indices split things up differently. The Large Cap Index fund is the largest 750 companies. The smallest 450 in the 750 are included in the Vanguard Midcap Fund. After the largest 750, the next 1000 are included in the Small Cap Index fund.

This means that the Vanguard Mid Cap Fund actually holds the smallest 200 companies in the S&P 500 fund as well as another 350 companies.

The Total Stock Market Fund contains about 3000 companies. The combination of the S&P 500 funds and the Extended Market fund contain 3500 companies, 500 more.

MSCI does offer a micro cap index, but Vanguard has no separate fund which uses that index. This might be because trading costs in those companies is likely to be high and their overall impact on market performance is likely to be undetectably small.
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Re: Now in Wiki: Extended Market Index Fund

Postby Barry Barnitz » Wed Mar 14, 2012 3:28 pm

ourbrooks wrote:I think that the article needs a caveat to the effect that the Extended Market Fund is for those who use the S&P indices. The MSCI indices split things up differently. The Large Cap Index fund is the largest 750 companies. The smallest 450 in the 750 are included in the Vanguard Midcap Fund. After the largest 750, the next 1000 are included in the Small Cap Index fund.

This means that the Vanguard Mid Cap Fund actually holds the smallest 200 companies in the S&P 500 fund as well as another 350 companies.

The Total Stock Market Fund contains about 3000 companies. The combination of the S&P 500 funds and the Extended Market fund contain 3500 companies, 500 more.

MSCI does offer a micro cap index, but Vanguard has no separate fund which uses that index. This might be because trading costs in those companies is likely to be high and their overall impact on market performance is likely to be undetectably small.



Hi:
I have included a line regarding different index providers carving markets differently, as well as a new introductory definition accompanied by reference links to three index provider's completion fund indexes.

Current version:

Extended Market Index Fund - Bogleheads

regards,
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Re: Now in Wiki: Extended Market Index Fund

Postby Kevin M » Wed Mar 14, 2012 3:45 pm

Nisi, I'm sure you've ready many if not most of the books I have, and know that the theory of tilting or slicing and dicing is based on Fama/French and related research. One of the 3 factors is SmB (Small minus Big). There is no MmB (Mid minus Big) factor, and as I recall, the return/risk increases the smaller you get. So no, in all the many books I've read, I've never seen a recommendation to tilt toward mid-caps, nor to use Extended Market as a way of tilting to small.

Having said that, you asked for inputs from slicers and dicers, and I am one. I'll just repeat what I said up-thread. If I wanted to tilt toward small, and I had no decent low-cost, index or index-like choices other than a low-cost, Extended Market index fund, I would use it to tilt to small. Even though it's mid/small, I would think of it as tilting toward small, because it's small relative to the S&P 500.

Just look at median market caps (Vanguard funds). S&P 500: 54.8B; Extended Market: 2.6B; Small-cap: 1.7B. Extended market gets me much closer to small-cap than the S&P 500.

Nice job on the wiki article. Although I think the article is fine as is, especially with the Boglehead emphasis on simplicity (which I personally don't follow, but often recommend :wink: ), it would be more comprehensive if it mentioned something along these lines. The books rarely if ever address the reality of limited choices in 401k/403b type plans, so I'm not going to bother looking for a reference in a book; I doubt I'll find it. You probably could find one in an article if you Googled enough.

Some wiki articles reference Boglehead threads. You could reference this thread as your source if you want.

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Re: Now in Wiki: Extended Market Index Fund

Postby chisey » Wed Mar 14, 2012 4:00 pm

I am far from being an authority, but I will say that I use Fidelity's Extended Market Advantage (FSEVX) as a significant holding and NOT as a completion of the S&P500. It's only about 6% of my invested money right now, but that will grow over time as it's in a new account that gets about 1/3 of my new money.

There are two reasons I use it:

1) I tilt to both mid and small (mid more than small), so in essence I do tilt away from large caps. Extended Market funds do that in a general sense using only one fund.

2) It is a MUCH better option than using Fidelity's small and mid advantage funds because of costs AND because the mid cap fund is almost 26% large cap based in the Morningstar Instant X-ray.

The Extended Mkt fund has an ER of 0.07%. The mid and small funds have ERs of 0.20% and 0.23%, respectively. So even if I had no other reason, I consider that a big enough difference to matter. On top of that, if one is trying to tilt away from large caps one would probably not choose a mid cap fund that invests more than 1/4 of its assets in large cap stocks. The closest you could get to the extended market using the mid/small funds is a 60/40 split, and this split would give you (1) a 0.21% ER (3x that of the ext mkt fund), (2) 16% large caps (3x that of the ext mkt fund). That's a loser both ways.

So investors who tilt away from large caps are out there, and there are good reasons for them to choose extended market funds depending on circumstances. It's good for completion of the S&P500, but that's not all it's good for.
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Re: Now in Wiki: Extended Market Index Fund

Postby paullees » Wed Mar 14, 2012 4:12 pm

Wow the fidelity is a bit cheaper than the Vanguard!
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Re: Now in Wiki: Extended Market Index Fund

Postby Barry Barnitz » Wed Mar 14, 2012 4:33 pm

Hi:

I added a brief subsection regarding constrained choices in employer provider plans.

Current version: Extended Market Index Fund - Bogleheads.

regards,

p.s. editing the wiki is quite easy, if you want to try your hand .
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Re: Now in Wiki: Extended Market Index Fund

Postby LadyGeek » Wed Mar 14, 2012 5:40 pm

I didn't know what an Extended Market Index or Completion Index was; and the introduction was too difficult to follow. So, I did more reading and rewrote the introduction. Please review, as I didn't intend to change anything except make it easier to understand.

Wiki article link: Extended Market Index Fund

Comments / questions / suggestions are welcome.
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Re: Now in Wiki: Extended Market Index Fund

Postby Mel Lindauer » Wed Mar 14, 2012 5:46 pm

nisiprius wrote:It's here, maybe. But I'm not clear on what Mel was actually saying. The position is one specifically in favor of mid-caps, though, even hypothetically making them the sole equity holding. It was not a position of "hold the entire market but underweight the S&P 500."

But I can't tell whether Mel is actually suggesting implementing a heavy tilt toward mid-caps, or wondering why there's so little talk about them, just conducting a thought experiment, or saying isn't clear to me. Mel is asking:
What would be your thoughts on simply having one's domestic portfolio made up entirely of mid caps, Larry? It would seem to allow one to have their portfolio on autopilot, without the need for constant rebalancing. It should also capture the "sweet spot" of the market, and exhibit characteristics of the combined 50/50 [large-cap and small-cap] split.
But my point is, if you actually wanted to implement this, wouldn't you use a mid-cap fund, rather than completion index fund? And the 401(k) plans employers have offered always included focussed mid-cap and small-cap fund choices, though usually actively managed and with high-but-not-vomitrocious ERs.


In an attempt to clear things up, I'll address the two points that refer to me:
1. Going back more than 10 years, I've long advocated that sophisticated investors consider using mid-caps as their only equity holdings. Over the years, my advocacy caused mid-caps to become known as "Mels' Unloved Mid-Caps".
2. And, yes, my recommendation was that it should be implimented with the mid-cap index, not with the Extended Market Index.

FWIW, I should state that I "ate my own cooking" and it proved to be very successful.
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Re: Now in Wiki: Extended Market Index Fund

Postby 555 » Wed Mar 14, 2012 11:14 pm

I am in exactly in the situation described. I basically want to have a three fund portfolio with total market funds. But 13% of my salary goes into my 401a, and the only decent fund is TIAA-CREF S&P 500 Index (ER 0.32%), so I put my entire contribution into that. Then I have to fill in the gaps in other locations, and they almost all also have limited options, but at least there are small options, e.g. MSCI1750 in 529 plans, or Russ2000 in 457 plan. But only my (and wife's) IRA's have the full Vanguard fund lineup. So I've decided I really do want to cover the whole market by using Extended Market Index Fund, rather than just plugging the gap with an arbitrary smallish fund. Actually Extended Market is much broader than the other funds.

So I'm using Extended Market for exactly the purpose it was designed for. That said, I would never own an S&P 500 fund if I didn't have to (and so would never need Extended Market). There's a lot of interesting asset allocation discussions on the forum, but the reality is, for a lot of us, it is the best we can do just to cobble together a basic three fund portfolio from whatever pieces are available.
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Re: Now in Wiki: Extended Market Index Fund

Postby Kevin M » Thu Mar 15, 2012 4:07 am

Here is a link to a 10-year chart comparing Vanguard Small-Cap, Extended Market and 500 Index.

http://www.google.com/finance?chdnp=0&c ... UTF:NAESX&

Does anyone see enough difference between Small Cap and Extended Market to make a difference, especially compared to 500 Index? I don't. Reduce the time frame to 5 years and take VFINX off the chart, and you can barely see any difference between small cap and extended market.

Now add VTSMX (total market) to the chart (and add back VFINX). Doesn't look like it would have made much difference whether you added 20% of small cap or 20% of extended market to VFINX to approximate VTSMX.

So again, despite all the hullabaloo about exactly what it contains, whether or not it overlaps with other large cap indexes, it's much broader, etc., Extended Market still performs almost identically to the small-cap index fund, and has pretty much the same impact on the portfolio.

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Re: Now in Wiki: Extended Market Index Fund

Postby Roozbeh » Thu Mar 15, 2012 4:30 am

The 401(k) at my company (a large software company) actually offers both an S&P 500 fund and an Extended Market Fund. Both are very cheap (Institutional, VINIX and VIEIX, at 0.04% and 0.12%). But the optimizer in me hates it, since they could have offered VITNX at 0.045%, while combining VINIX and VIEIX gets me to 0.056% with a need to recheck and rebalance my contributions...

I always thought they're for people who want to increase or decrease their exposure to small caps or mid caps. Now I'm thinking maybe they're for people whose spouses have an S&P 500 fund in their employer's plan and want to use ours to complement it...
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Re: Now in Wiki: Extended Market Index Fund

Postby leoc2 » Thu Mar 15, 2012 7:11 am

I found this old post "Mel's Unloved Mid-Caps vs 3033 stocks"
viewtopic.php?f=10&t=61300

Actually, that was a pretty interesting nine year stretch from 10/2001 to 10/2010: Extended Market, Mel's Unloved Mid Caps, Small Cap Value, and Small Cap Blend all highly correlated.
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Re: Now in Wiki: Extended Market Index Fund

Postby nisiprius » Thu Mar 15, 2012 8:52 am

Kevin M wrote:Here is a link to a 10-year chart comparing Vanguard Small-Cap, Extended Market and 500 Index.

http://www.google.com/finance?chdnp=0&c ... UTF:NAESX&

Does anyone see enough difference between Small Cap and Extended Market to make a difference, especially compared to 500 Index? I don't.
I was going to say simply +1. I was ready to agree that despite theory, the extended market index (VEXMX) is an excellent stand-in for small-cap index (NAESX). But then I made the mistake of looking at more data :)

The story as I see it... but I don't know what to make of it... is that on a growth chart, from 1998 to 2002, "weird stuff happened" and it mattered whether you were in mid-cap index (VIMSX), small (NAESX), or extended (VEXMX). For the rest of the time for which Morningstar has data, it didn't matter. If you look at growth. In price, it's weird. No differences lately, but a lot of difference earlier.

1) For the last ten years, I'm willing to call the price charts for VEXMX and NAESX "identical." But if you take the price chart further back live chart:
Image
Those differences might be entirely due to weird stuff in the first few years, though? Weeeellll... take a look. I have to slide the starting point all the way up to 1991 to make the difference go away.

2) However, if you display the growth chart, which is always my primary point of departure, then indeed they are almost identical over the period 1987-2012--except where they aren't. This is really surprising to me--I don't think I've seen a pair of growth charts diverge and then rejoin so perfectly before. live chart.
Image

3) When you add the mid-cap index fund, it becomes even yet more curioser. Watch out, the mid-cap fund only had inception in 1998 so this is a shorter period of time. live chart
Image

4) But, that mid-cap outperformance also is sharply confined to a rather short period of time. For the last ten years, the Vanguard small-cap index, mid-cap index, and extended market index have been practically clones.
Image

I do not know what to make of this. Based on the last ten years, I'd have been ready to say that the differences between small-cap index (NAESX), mid-cap index (VIMSX), and extended market index (VEXMX) are theoretical technicalities, but not when you look at a longer period. And I don't know how we can use this in the article.
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Re: Now in Wiki: Extended Market Index Fund

Postby 555 » Thu Mar 15, 2012 12:54 pm

Roozbeh wrote:The 401(k) at my company (a large software company) actually offers both an S&P 500 fund and an Extended Market Fund. Both are very cheap (Institutional, VINIX and VIEIX, at 0.04% and 0.12%). But the optimizer in me hates it, since they could have offered VITNX at 0.045%, while combining VINIX and VIEIX gets me to 0.056% with a need to recheck and rebalance my contributions...

I always thought they're for people who want to increase or decrease their exposure to small caps or mid caps. Now I'm thinking maybe they're for people whose spouses have an S&P 500 fund in their employer's plan and want to use ours to complement it...

Also you pay transaction costs whenever stocks move across the dividing line, and the funds sell stocks to each other.
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Re: Now in Wiki: Extended Market Index Fund

Postby 555 » Thu Mar 15, 2012 12:57 pm

Here's another point. Extended Market Index Fund contain smaller cap stocks than Small Cap Index Fund!!!
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Re: Now in Wiki: Extended Market Index Fund

Postby The Wizard » Thu Mar 15, 2012 1:22 pm

I enjoy Nisi's plotting research, but I wish there was a better way of showing results over time.
The multi-year growth of $10K plots are too dependent on start-point and end-point selection.
If I was in charge, I'd also have plots available to show annualized returns over standard 3-month and 12-month periods...
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Re: Now in Wiki: Extended Market Index Fund

Postby Kevin M » Thu Mar 15, 2012 3:40 pm

Nisi, I was wondering if you'd chime in with the growth charts. I was too lazy to check. The interesting thing is that it's not just the growth charts that highlight the differences, but the further-back time periods. One thing to keep in mind is that the indexes that the funds follow have (or may have) changed. That's one reason I think looking back too far may not be that relevant, but I may be wrong.

The Wizard: You can show rolling returns on Morningstar. Why don't you take a look at that and see if it shows you what you're looking for.

No one has commented on the median market caps I showed above. Since Extended Market is very close to Small-Cap, and much smaller than S&P 500, it's bound to work a lot like small cap. Maybe you could mention this in the article.

Again, if you don't have access to a low-cost, small-cap index fund, but you do have access to a low-cost Extended Market fund, what else are you going to do if you want to tilt toward small cap? To me it's a no brainer, and I think we're over analyzing it (but it's fun and educational to do so).

Another point: the less you tilt, the less difference it makes which you use (Ext. Mkt or SC), since the large caps in S&P 500 dominate the performance. Just add in VTSMX to your charts to see this.

In the article, you could say something like "Over the last 10 years, the performance of Extended Market and Small-Cap Index has been very similar. Over the last 5 years, almost identical. If you look further back, there is more deviation between the two. Unless you want to tilt very heavily to small-cap, it is unlikely that it will make much difference which one you use." Nisi, you are a better writer than I am, so I'm sure you can say it better. Or maybe this is just getting too deep in the weeds to even get into it more deeply in that particular article.

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Re: Now in Wiki: Extended Market Index Fund

Postby DetroitRed » Thu Mar 15, 2012 4:05 pm

Another possible reason to hold Extended Market -- you wish to have Total Stock market exposure in a taxable fund, but you already regularly contribution to a Total Stock Market fund in a non-taxable location (or vice versa). If you owned Total Stock Market (TSM) in both locations, you could trip the wash sale provisions because of Revenue Ruling 2008-5. Therefore, own the S&P 500 and Extended Market in one of the locations.

Note on a month when you are selling TSM for a loss, it'd probably be wise to only purchase the S&P 500 fund and not Extended Market. In my mind that would cover you from any wash sale exposure.

Example at http://www.investopedia.com/articles/re ... z1pDWzBSd6

I've been in this situation in the past.
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Re: Now in Wiki: Extended Market Index Fund

Postby Kevin M » Thu Mar 15, 2012 4:19 pm

DetroitRed: Sure, you could do that, but you can do the same thing with many other combinations of Large-cap and Small-cap funds-- e.g., the Vanguard funds of those names--for purposes of TLH with Total Stock.

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Re: Now in Wiki: Extended Market Index Fund

Postby nisiprius » Thu Mar 15, 2012 4:20 pm

OK, I extended Barry's section with some carefully weaseled words, and changed the title:

Dissenting views, and constrained choices in employer provided plans

Does this fairly represent the collective range of points of view?
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Re: Now in Wiki: Extended Market Index Fund

Postby DetroitRed » Thu Mar 15, 2012 4:42 pm

Kevin M wrote:DetroitRed: Sure, you could do that, but you can do the same thing with many other combinations of Large-cap and Small-cap funds-- e.g., the Vanguard funds of those names--for purposes of TLH with Total Stock.

Kevin


If the goal is to replicate Total Stock Market, then S&P 500 + Extended Market is the cheapest & easiest way I know to do that. There are definitely lots of other easy ways to replicate TSM that aren't all that expensive though (iShares Russell 1000 + iShares Russell 2000 for example).
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Re: Now in Wiki: Extended Market Index Fund

Postby LadyGeek » Thu Mar 15, 2012 4:56 pm

I reworded the section to make it easier (for me) to understand, including a slight modification to the definition of slice and dice.

Wiki article link: Extended Market Index Fund
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Re: Now in Wiki: Extended Market Index Fund

Postby Kevin M » Thu Mar 15, 2012 5:07 pm

DetroitRed wrote:
Kevin M wrote:DetroitRed: Sure, you could do that, but you can do the same thing with many other combinations of Large-cap and Small-cap funds-- e.g., the Vanguard funds of those names--for purposes of TLH with Total Stock.

Kevin


If the goal is to replicate Total Stock Market, then S&P 500 + Extended Market is the cheapest & easiest way I know to do that. There are definitely lots of other easy ways to replicate TSM that aren't all that expensive though (iShares Russell 1000 + iShares Russell 2000 for example).

Or the one I mentioned: Vanguard Large-Cap Index + Vanguard Small-Cap Index. These use the MSCI indexes. Large-cap is really Large + Mid (top 300 is large, next 450 is mid, VG uses all 750 in their LC fund). Small-cap is everything else, except micro caps. LC + SC = TSM (exactly, since they're all based on the same MSCI indexes). This is from memory; last checked the MSCI indexes maybe a year ago.

S&P plus extended market is a few basis points cheaper, but I doubt you'll notice the difference.

EDIT: As mentioned above, since VG LC, SC and TSM all use the MSCI indexes, LC + SC = TSM exactly. Since the S&P funds use a different set of indexes, S&P + Extended Market does not exactly equal VG TSM. So, although S&P 500 + Ext. Mkt may be ever so slightly cheaper, it certainly is no easier than LC + SC, and technically it is not the same as TSM. But, this is all just for fun; it really does not matter.

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Re: Now in Wiki: Extended Market Index Fund

Postby Kevin M » Thu Mar 15, 2012 5:28 pm

Nisiprius and LadyGeek: Wonderful that you invest so much to make it better! I was happy with the original version. I am happy with the current version.

If I were writing it, I would not say it's surprising that small-cap and ext. market have similar performance. If you look at the median market caps (which no one seems interested in), it isn't very surprising. I wouldn't even mention mid-cap, since the closeness of market caps of small-cap and ext. market alone make the point, especially when compared to S&P 500; and, we are talking about tilting toward small-cap, not mid-cap (or should be since there's no widespread use of mid-cap tilting--not that Mel is unloved :wink: :wink: ).

I think the last paragraph sums up the bottom line quite nicely.

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Re: Now in Wiki: Extended Market Index Fund

Postby Barry Barnitz » Thu Mar 15, 2012 5:58 pm

Hi:

I added a reference note to the page, regarding the fact the Vanguard index funds referenced in the page have historically transitioned from one index provider to another, along with links to wiki pages tabulating index provider returns.

Extended Market Index Fund - Bogleheads.

Perhaps we should also note the make-up of the Vanguard line-up:

Total Market Index (MSCI) consisting of MCSI large, MSCI mid, MSCI small versus S&P 500 plus Extended market (S&P Completion).

regards,
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Re: Now in Wiki: Extended Market Index Fund

Postby nisiprius » Thu Mar 15, 2012 6:01 pm

LadyGeek wrote:I reworded the section to make it easier (for me) to understand, including a slight modification to the definition of slice and dice.

Wiki article link: Extended Market Index Fund
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Re: Now in Wiki: Extended Market Index Fund

Postby Kevin M » Thu Mar 15, 2012 6:20 pm

Barry Barnitz wrote:Total Market Index (MSCI) consisting of MCSI large, MSCI mid, MSCI small versus S&P 500 plus Extended market (S&P Completion).

Here is a link to a graphical display of the relevant MSCI indices: http://www.msci.com/products/indices/co ... ndices/us/

I may have been mistaken about TSM = LC + SC, since TSM follows US Broad (verified in summary prospectus), which includes US Micro Cap (of course VG uses sampling, not full replication).

VG LC follows US Prime Market 750 (IIRC), which includes US Large Cap 300 and US Mid Cap 450. (You can get LC 300 in the VG Mega-Cap ETF, but not in a mutual fund; the VG Mid-Cap fund is US Mid Cap 450, so overlaps with VG LC).

VG SC tracks US Small Cap 1750 (just verified in prospectus), which does not include US Micro Cap.

US Micro Cap is smallest 1.5% of US Broad Market, so TSM = LC + SC + US Micro Cap (not available from VG). Thus, VG LC + SC gives you everything in TSM except smallest 1.5% of US Broad Market.

Also, "The MSCI US Broad Market Index represents approximately 99.5% of the full capitalization of the US equity market"

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Re: Now in Wiki: Extended Market Index Fund

Postby Barry Barnitz » Fri Mar 16, 2012 3:11 am

Hi:

I added a couple of notes:

1. A note detailing the most often used MSCI (Prime Market) and Russell (Russell 1000) indexes used as targets for large cap index funds, as well as a breakdown of cap coverage of Vanguard MSCI and S&P index fund offerings that mimic Total Stock Market allocations.
2. Added an expansion of a note indicating that Vanguard offers (2) mid cap index funds, one based on MSCI and one based on S&P indexes, and that the firm offers (4) small cap index funds based on MSCI, S&P, and Russell indexes.

Extended Market Index Fund - Bogleheads.

regards,

[p.s. please note that the continual evolution of this wiki page is how a wiki works: multiple collaborations: see page history. Thanks for inputs]
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Re: Now in Wiki: Extended Market Index Fund

Postby 555 » Fri Mar 16, 2012 3:29 am

Kevin M, that's what I was getting at when I said
555 wrote:Here's another point. Extended Market Index Fund contain smaller cap stocks than Small Cap Index Fund!!!

Extended Market Index Fund contains those micro caps, but Small Cap Index Fund doesn't.
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Re: Now in Wiki: Extended Market Index Fund

Postby Kevin M » Fri Mar 16, 2012 4:05 am

555 wrote:Kevin M, that's what I was getting at when I said
555 wrote:Here's another point. Extended Market Index Fund contain smaller cap stocks than Small Cap Index Fund!!!

Extended Market Index Fund contains those micro caps, but Small Cap Index Fund doesn't.

OK, you win this one, but the smallest 1.5%--c'mon. Do you really think that makes a difference? Can you see it on a chart comparing the two? Not to mention that this smallest 1.5% is just sampled:

nearly 80% of its assets invested in approximately
1,200 of the stocks in its target index (covering nearly 85% of the Index’s total market
capitalization), and the rest of its assets in a representative sample of the remaining
stocks


We are really getting to the level of angels dancing on a pin here. Not that it can't be fun.

This is even a smaller deal than people who make a big deal out of VG Total International containing small-cap stocks. They just don't carry enough weight to make enough difference to worry about (although VG TISM is my favorite international fund). I'm much more interested in the fact that it includes about 25% emerging markets than that it includes 4% in small caps.

I think that we agree on the major points: Extended Market is a fine way to get Total US by adding to S&P 500, and it's a fine way to tilt to small if you want to do that. Yes?

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