Bogleheads

[Lbill]

In his book "Unconventional Success," David Swensen states:

[larryswedroe]

Few thoughts

First, this issue of Keep it simple is WAY WAY overstated. How much work is required when you add another asset class? For passive investors almost none. Few times a year you rebalance and maybe TLH. Takes few minutes.

Second, more diversification is better than less if you reduce uncompensated risk.

Third, the lower the correlation the more of impact adding an asset can be. And volatility matters. Thus, in isolation a rule like 5% makes no sense because adding a small amount of an asset with negative correlation and high volatility can have more impact than adding a significantly higher allocation of an asset with very high correlation.

Fourth location issues may limit the ability to add an allocation to a desired asset class and some is better than none.

[livesoft]

Another reason is that sometimes 1%, 2%, etc is on the way to 5% and up.

[spam]

An allocation of less than 5% can still be a substantial amount to loose.

[Triple digit golfer]

"Keep it simple" may be overstated, and I agree that it takes little time and effort to add another asset class or rebalance, but the point is will that 2.5% allocation to REITs or whatever it may be really do much for you?

I think in nearly every case the answer is no.

[spam]

[norookie]

To be a contrarian or just thinking _"play"_ money maybe 2-3% in your favorite individual equity maybe?,.... for FUNZ! Just a thought I had as I saw certain Financial/Banking equities fall down to a dollar or lower that seem to have recovered nicely. It is gambling but:::>Just saying..........

[Triple digit golfer]

[larryswedroe]

It is not an issue of doing much, if the cost is effectively zero if it adds anything it should be done

[Roy]

[DSInvestor]

I think context is important. A 2.5% holding of REIT doesn't look like much by itself. Let's surround that REIT fund with some other funds:

20% TBM
37.5% TSM
30% FTSE All World ex-US
10% Small Cap Value
2.5% REIT

TSM and Small Cap Value also have REIT. What's the overall exposure to REIT in this portfolio relative to market weight?

[spam]

[Beagler]

[Boglenaut]

[Lbill]

[VennData]

Well, whatever you do... do NOT add any VWO (aka VEIEX/VEMAX) until you read this interview in the recently smarted-up WSJ's interview with Jim O’Neill, Vampire Squid's chief economist:

WSJ: How do you think investors should target emerging markets?

Mr. O’Neill: Emerging markets are a diverse set of countries. So it doesn’t make much sense to invest in a broad-based emerging-markets index

http://online.wsj.com/article/....82043.html

And I'd like the thank Rupert Murdock personally for delivering such a fine, ever-improving critique of the modern world of business and finance.

[Blue]

I've always thought Swenson's point made a lot of sense.

2-3% allocation is as large as many rebalancing bands for higher allocation % assets. At some point, noise in the data overwhelms the significance of these small allocations.

[yobria]

As I've said many times - a < 5% allocation of anything is a waste of time.

Nick

[jeffyscott]

I think it is a waste of time to spend time telling other people that they are wasting their time by putting <5% in a somewhat arbitrary group of securities called an "asset class".

Is it a waste of time for a fund that represents an asset class to have less than 5% in any one stock?
_________________
Jeffy

press on, regardless - John C. Bogle

[camper]

[Fbone]

If an investor is bored with his portfolio, I can understand adding a small percentage into a speculative stock/etf/fund to make things more interesting and keep you actively involved.

[Beagler]

[yobria]

[sscritic]

Doesn't the size of the portfolio matter? With a $10 million portfolio, if you open a checking account with $200, you need to keep at least $500,000 in cash (cash is an asset class and 5% of $10 million is $500,000). I certainly can understand someone keeping less than 5% in cash in this situation. Even with only a $1 million portfolio, you would need $50,000 in cash.

If the rule doesn't apply to cash, to which other asset classes does it not apply?

[baw703916]

[Triple digit golfer]

[Valuethinker]

[Trev H]

IMO - should start with the core 4, equally weighted.

25% US Large
25% US Small
25% Intl Large
25% Intl Small

(value tilt if you want)

And you could sure stop with that if you wanted !

But then allow 10-20% (other components) and equally weight them.

For example at the max - could deviate from that up to:

20% US Large
20% US Small
20% Intl Large
20% Intl Small
05% US REIT
05% Intl REIT
05% Commodities
05% Gold

Talking Equity Allocation only of course.

I think my brain may be wired for 1/N allocations, or perhaps it could be that after a "zillion or so" backtest - and seeing how well 1/N type allocations work and how simple they are, could be that is what has wired my brain that direction

===

[larryswedroe]

Lbill
Of course costs matter. But that is true REGARDLESS of the percentage you add. Either you should add the asset class or not because of costs.

I made the very point that correlations and volatility should matter. If high correlation then adding an asset class may not make much difference. But again, even small benefits are still benefits--especially if costs are very low. And adding asset classes can add little to no costs.

As to know how to rebalance effectively, that is a totally separate issue. What difference does that make if you have 4 or 5 asset classes. Either you do or you don't, and if you don't you should be getting professional help either way.

[jeffyscott]

The appropriate target fund for my expected retirement date, 2015, has 3.3% in Pacific stock index and 2.7% in emerging markets. Don't they know they are wasting their time?

Roy posted past return data for:
95% S&P 500 and 2.5% CCFs and 2.5% REITs

and truely the difference did not look like much to me, but what if it were something like: 2.5% REIT, 2.5% CCF, 2.5% emerging, 2.5% foreign, 2.5%, foreign small, 2.5% US small value, 2.5% US large value, 2.5 % foreign value, and 80% S&P 500? And what if instead of 2.5% it were 4% or 5% in each, since 5% is the threshold where an allocation is supposed to "matter", according to some.
_________________
Jeffy

press on, regardless - John C. Bogle

[Beagler]

[Beagler]

[wilson08]

[Lbill]

Larry wrote:

[TheEternalVortex]

[Sheepdog]

I have 22% allocation to equities. If I have 2% of the total in REITs, that 2% is actually 9% of equity.
_________________
Frame every so-called disaster with these words "in five years, will this matter?"

[Ziggy75]

Small percentages are used in the Target Retirement Income Fund:

eg:
Vanguard Prime Money Market Fund Investor Shares 5.0%
Vanguard European Stock Index Fund Investor Shares 3.0%
Vanguard Pacific Stock Index Fund Investor Shares 1.6%
Vanguard Emerging Markets Stock Index Fund Investor Shares 1.3%

Of course you don't have to worry about rebalancing within this fund...

[djw]

Just yesterday I was thinking that if I'd put 3% of my money into Ford stock when it was near its $1.01 low last November 20th, I'd be a very happy investor at yesterday's $8.44 closing price.

Last November I was confident that Ford would survive and prosper in the future and I used to dabble in Ford stock, among many others, when I was a short-term trader a few years ago using Scottrade. Then I saw the light and became a Boglehead slice-and-dice index investor.

I mention this just to illustrate how an extremely volatile investment can hugely outperform the S & P. Of course, it can also go to zero -- look at GM.

Instead of speculating with individual stocks like Ford, today I have slices in VGENX (energy stocks) VGPMX, (gold, platinum, and mining stocks), and VGSIX (REIT stocks). Not as volatile as Ford or GM, but in return for surrendering some upside potential, I've also eliminated the chance of dropping all the way to zero (like GM).

It's easy to bemoan how much I could have made in Ford stock over the past 8.5 months, but that's 20/20 hindsight. In my trader days, I would never have kept the stock this long. I would have sold when it doubled from $1.01 to $2.02, if not sooner.

[jeffyscott]

[DRiP Guy]

[jeffyscott]

[DRiP Guy]

[gw]

[Roy]

[johnjtaylorus]

Thoreau made a sound point about simplicity.

However, even before elec spreadsheets (I've been investing 40 yrs), it wasn't hard to keep track of investments < 5%.

And the math is inexorable. Anything positive or negative affects the portfolio in toto.

[ruralavalon]

[Blue]

I am curious at what level those that support very small allocations <5% would think would be so small to be insignificant.

If 3% is ok, why not 0.3%. At some point surely all of us recognize there is declining impact of adding very small amounts to a portfolio, and if the number is not 5%... then what is the number that is too small to make difference? Would we all agree that smaller than 2% is insignificant relative to noise?

[Valuethinker]

[jeffyscott]

[spam]

The top 10 stocks in the S&P500