mphilips wrote: grabiner wrote:
Vanguard's small-cap index has some mid-caps by the usual definition; it's about the bottom 15% of the market. It doesn't overlap with the mid-cap index, which is about the next 15%. Thus, to get a total market allocation with the three funds you have, your US allocation would be 70% Institutional Index (which is the S&P 500), 15% Mid-Cap Index, 15% Small-Cap Index.
When I enter a distribution of stocks using 70% VIIIX 15% VMCIX and 15% VSCIX - Vanguards portfolio analysis shows a discrepancy in a comparison with the total US stock market which is listed as 65% Large Cap 28% Mid Cap and 7% Small Cap. By contrast VTSAX lines up exactly with this 65/28/7 allocation. Please explain why the 70/15/15 allocation does not line up this way.
The problem is with Vanguard Portfolio Watch. Vanguard puts most funds 100% in one category, and that isn't correct for Small-Cap Index, which is not 100% small-cap by the definition of small-caps which makes them only 7% of Total Stock Market.
Here is the data from Morningstar, which divides the market as 70% large, 20% mid, 10% small.
Total Stock Market: 72/19/9
Intstitutional or 500 Index: 87/12/0 (adds to 99 because of rounding)
Mid-Cap Index: 16/83/0
Small-Cap Index: 0/42/58
70/15/15 portfolio: 64/28/8
So this has a slight overweight to mid-caps. However, the overweight is in the largest of the mid-caps, which behave more like small-caps, as the mid-caps in the S&P 500 are mostly the largest ones, while the mid-cap and small-cap indexes cover all the mid-caps. Thus this allocation should behave much like a total-market allocation. 80/5/15 would come closer to the percentages at 71/21/8, but the exact correct percentage will vary.