SO - depending upon how you stretch the chart rubber band, do midcap & smallcap have a place, or just go with the longer than 5 year view as per the little book, and toss all the equity into Total Stock Market - VTSMX ??
Trev H wrote:hpowders...
Bear Market 2000-2002 and 2008 (facts).
TSM returns were -10.57, -10.97, -20.96, and in 2008 was -37.04 --- total return for those bear market years -79.54
Small Value returns were +21.88, +13.70, -14.20, and -32.05 --- total return for those bear market years -10.67
Small Value has the lowest correlation to the US Market and IMO the best way to hold it is a combination of US Large Market and Small Value.
I personally split my US equities 50/50 Large Cap Index, Small Value Index.
Also note that a very small increase in bond allocation (around 5%) completely eliminates the portfolio volatility issue resulting from such a equity mix.
Trev H wrote:Grt2bOutdoors said...
they will not be seeing SmV or MdV dropping by 20% while LC is up 10%.
Please review again.... the actual returns for TSM and SV 2000-2002
TSM..... -10.57, -10.97, -20.96
SV....... +21.88, +13.70, -14.20
To go with your statement above... But they may actually see SV up 21.88% while TSM is down -10.57
Sure TSM is a smiple way to hold the Market (Beta)... but you have no size/price diversification.
If the individual can't stand to see different parts of his portfolio working differently over different periods of time - they better not be investing separately in stocks and bonds because they will sure be reacting differently over different periods of time. The only solution for them would be a all in one balanced fund.
If you can "get over that".... and invest in different components, then you can certinly come to realize that stocks and bonds will give different returns over differrent periods of time, and so will you individual stock and bond components (US, Intl, Large, Small, etc)... (Treasuries, Tips, Corps).
Small stocks may outperform the market at times. However, the inherent risk is great. The AAII has a small stock model portfolio and it was down over 50% in 2008.
Small stocks are too volatile for me. I'd rather go with smooth and steady.
I don't know many folks who could stay with a portfolio down 50%.
If you are constantly fretting over the performance of individual components of your portfolio... well (IMO) you are just paying way toooooo much attention to your investments.
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