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Apathizer wrote: ↑Sat Mar 18, 2023 10:46 pm Again, you don't if that will be the case. A factor-tilted portfolio ER is about 0.20 higher than MCW. If the tilted portfolio returns, say, 1% higher, which seems reasonable, it's still worthwhile. Even if it doesn't out-perform the additional costs are fairly modest.

Yes, I'm with you on hoping this 1% turns up in my lifetime!

Nathan Drake wrote: ↑Sat Mar 18, 2023 11:14 pm Small cap value would have a higher premium.

So you have to weigh the added expense versus diversification benefits vs assets that have higher expected returns

I believe they will easily exceed those costs

Crossing my fingers.

What about the costs of holding international and emerging for US investors? Assuming all returns were suddenly equal, wouldn't holding these simply be just more expensive and therefore not optimal? Eg: it cost 1.01% to hold VWO (emerging markets) and 0.30% to hold VTI (US total market) in 2022. The costs to hold the two aren't that wide. International is more expensive in terms of costs, but well worth it for the wide potential dispersions across markets that can happen multiple times over a lifecycle of an investing horizon. These were the actual results of 2022 which I got the information from the spreadsheet that is commonly shared here on the forums: https://docs.google.com/spreadsheets/d/1owatGsAWQ3Ep60lo25cpLaj7LoH-FtPSXxNPwGuAMk8/e...

What about the costs of holding international and emerging for US investors? Assuming all returns were suddenly equal, wouldn't holding these simply be just more expensive and therefore not optimal?

Eg: it cost 1.01% to hold VWO (emerging markets) and 0.30% to hold VTI (US total market) in 2022.

Thanks for the replies. Ultimately I was hoping to find a quick way to calculate the true cost of dividends as measured by an "expense ratio" when you hold a fund in a taxable account. What other math would I need to consider to make this calculation? You might need to consider the percentage of the dividends that is actually qualified, versus ordinary, and/or state taxes. For some high tax bracket investors, the added dividends are punitive, and they wind up better off by holding tax-exempt municipal bonds in their taxable account, or avoiding international stock funds because they tend to have a higher dividend yield. Grabiner sometimes writes on this topic. Another high tax bracket strategy is to hold 50% growth index in taxab...

Thanks for the replies.

Ultimately I was hoping to find a quick way to calculate the true cost of dividends as measured by an "expense ratio" when you hold a fund in a taxable account.

What other math would I need to consider to make this calculation?

Marseille07 wrote: ↑Thu Mar 16, 2023 12:53 pm

rushrocker wrote: ↑Thu Mar 16, 2023 12:40 pm I think the most compelling arguments are the relative valuations and the correlations.

No such thing as relative valuations.

US companies valued at a multiple of US earnings is unrelated to European companies valued at a multiple of European earnings.

Hmmm, I don't quite agree with this.

Do these business not do any business internationally?

Do they not operate in similar sectors or markets?

There is some degree of relative valuation at play here.

Example, Taiwan Semiconductor or Intel. Nestle or General Mills. Etc.

I think the most compelling arguments are the relative valuations and the correlations.

Assume two funds are identical in every way except for their dividends, and that the person owning them is in the 15% bracket. All dividends are qualified dividends.

Fund A: 0.05% ER, with a 2.00% dividend yield
Fund B: 0.05% ER, with a 3.00% dividend yield.

Would the "cost" to own these funds be the 0.05% ER + (dividend yield * 0.15)?

Totals would be:
Fund A: 0.05 + .30 = .35
Fund B: 0.05 + .45 = .5

Thus, would we consider the true cost to own FUND B to be 0.15% higher, essentially meaning it has a 0.15% "invisible" expense ratio, per say?

Apathizer wrote: ↑Thu Mar 09, 2023 8:15 pm The idea that 'with dividends you get what you get' doesn't seem like an advantage to me. It just seems arbitrary. If the market is down and you automatically take dividends as cash, your balance will decrease more quickly.

Again, to me a variable withdrawal strategy based on total return is more practical since it will likely lead to your money lasting longer.

I do agree. There is no "actual" advantage to dividends on paper, given all other things being equal.

I have been on the fence with dividends. I fully understand that it's less optimal for so many reasons. Yet perhaps we are overlooking just how powerful the behavioral reasons can be. Will receiving dividends stop you from making behavioral investing mistakes? Maybe. Here are some reasons I have been considering why might it not be "so bad" to invest with dividends in mind: Having dividends set your income might actually be preferred for some people for behavioral reasons: Unless you are super disciplined, what is to stop someone from getting too confident and upping their withdrawal rate to 6-8% because the market is so hot, etc? If you leave it up to people to decide just how much they get paid, well they might just pay themselv...

I think it's just the funds you picked. If you run QISCX back to its inception in 2005 it has had a huge negative alpha.

Alpha is simply the unexplained portion of a return. It is very difficult to tilt away from the market without producing any alpha, positive or negative.

It seems redundant to buy value and growth both. If you tilt, pick a side. Or you'll just end up with the total market. Which would be simpler and easier from the get go.

On the topic of schd vs vtv. Both are fine large value funds, though schd gets there circuitiously and isn't heavily tilted value. I like that it has investment and profitability tilts. Schd also produced some alpha in its recent 10 year run. Will that continue? Who knows.

Avoiding FZROX and FZILX in taxable could be wise because you'll never be able to transfer them to another brokerage without selling. If you use other Fidelity mutual funds they are free to buy (like FSKAX). But non-fidelity mutual funds might incur a one time fee to buy into. Just a heads up.

OP has a large amount of cash, all things considered. If you budget for like 3-5 years of expenses and just keep that cash in HYSA or t-bills you can probably withstand most market crashes without selling any equities. A) How does anyone knows that the stock market will recover in 3 to 5 years in the coming recession? I know that I cannot predict the future. B) Still does not change anything that I posted. There is marginal utility to gain more money. But, losing 50% is going to hurt badly. It is a lousy bet. OP is guaranteed to lose 1) If OP win, the win does not matter. Hence, it is a loss. 2) If OP lose, the loss will be significant, It is a lose-lose bet. OP is guaranteed to lose. KlangFool That's why I specifically said most . Also, m...

PowderDay9 wrote: ↑Wed Feb 22, 2023 7:10 pm

KlangFool wrote: ↑Tue Apr 05, 2022 2:44 pm
zeldak,

When you asked the wrong question, you would never get the right answer.

How does losing 5 millions sound like a good option for you?

You are reaching a point that you can win just by not losing money. More gain does you little good. But, the loss will hurt you badly.

KlangFool

Agreed. OP is almost 100% stocks and wants to retire soon. What could go wrong!?!

OP has a large amount of cash, all things considered. If you budget for like 3-5 years of expenses and just keep that cash in HYSA or t-bills you can probably withstand most market crashes without selling any equities.

Given the fact that you can essentially pick 30 random stocks and get close to the market return over short periods of time, there's not much wrong with picking stocks.

If you have the time and the energy I think it'd be fun.

However if your idea of picking stocks is just choosing to individually own shares of the same top 10 companies outside of your index funds I don't see what the point would be. You already own millions of dollars worth of shares of these companies.

If you wanted to dig deep and try to find lower market cap companies that might actually 10x over a certain time period, that would be more fun and worthwhile to me.

Value thinker wrote:
High capital spending is, I think, associated with underperformance?

That sounds about right to me!

The keyword in your post OP is SEEMS.

I can fully agree that it SEEMS like we're due for a good run for value.

But we won't know til it's over...

I’ve been curious if a dividend screen acts as some kind of “conservative company management” screen. Never investigated though As I mentioned early, almost all dividend-focused ETFs will show significant factor loading in the Investment and Profitability factors in the Fama-French model, and the Quality factor in the AQR model. I don’t know that this is the same thing as a filter on management, but maybe it is The Investment factor is calculated as Conservative minus Aggressive, CMA. If you have a positive number than the stock or ETF would be considered to invest "conservatively", which has outperformed aggressive historically. Isn't it a measure of capital intensity? High investment companies tend to be in capital intensive, c...

The point I was making was that it's a fallacious argument, a red herring, to appeal to that argument when discussing factor tiiting. It's the equivalent of changing the subject. My sense is the rhythm of these conversations is almost always: (1) The OP raises some specific question about factor investing; (2) There is some discussion about the question; (3) Someone interjects to argue the OP should not be factor investing at all, because tilting is bad/play/whatever; (4) Other people defend factor investing, including by pointing out that everyone is tilting in conceptually similar ways. I think if you look back at this very conversation, in fact, you can see it follow this typical pattern. I agree it would be nice if we could just typica...

The point I was making was that it's a fallacious argument, a red herring, to appeal to that argument when discussing factor tiiting. It's the equivalent of changing the subject. My sense is the rhythm of these conversations is almost always: (1) The OP raises some specific question about factor investing; (2) There is some discussion about the question; (3) Someone interjects to argue the OP should not be factor investing at all, because tilting is bad/play/whatever; (4) Other people defend factor investing, including by pointing out that everyone is tilting in conceptually similar ways. I think if you look back at this very conversation, in fact, you can see it follow this typical pattern. I agree it would be nice if we could just typica...

I think conflating the idea of factor tilting with what it means to tilt towards or away from USA/World is not useful. And to say that if someone invests in anything other than VT is a "tilter" would likely qualify almost every single person as such. Personally, I think it would be a good thing if everyone understood why that conclusion is true. Which conclusion? That deviating from the global market portfolio is a tilt, by definition Indeed, and further that almost everyone does such "tilting" in some notable way, and further that in many cases they are choosing their "tilt" for good reasons. But also sometimes not so good reasons. The problem as I see it is a rhetorical one, as I was suggesting above. The co...

NiceUnparticularMan wrote: ↑Wed Feb 15, 2023 1:23 pm

rushrocker wrote: ↑Tue Feb 14, 2023 7:00 pm I think conflating the idea of factor tilting with what it means to tilt towards or away from USA/World is not useful. And to say that if someone invests in anything other than VT is a "tilter" would likely qualify almost every single person as such.

Personally, I think it would be a good thing if everyone understood why that conclusion is true.

Which conclusion?

I’ve been curious if a dividend screen acts as some kind of “conservative company management” screen. Never investigated though As I mentioned early, almost all dividend-focused ETFs will show significant factor loading in the Investment and Profitability factors in the Fama-French model, and the Quality factor in the AQR model. I don’t know that this is the same thing as a filter on management, but maybe it is The Investment factor is calculated as Conservative minus Aggressive, CMA. If you have a positive number than the stock or ETF would be considered to invest "conservatively", which has outperformed aggressive historically. Honestly I’ve never wrapped my head around the Investment factor. But besides using the word “conserv...

I think conflating the idea of factor tilting with what it means to tilt towards or away from USA/World is not useful. And to say that if someone invests in anything other than VT is a "tilter" would likely qualify almost every single person as such.

I say we leave that discussion to the weekly international thread and instead stay the course on the weekly SCV discussion

ScubaHogg wrote: ↑Tue Feb 14, 2023 3:51 am

rushrocker wrote: ↑Mon Feb 13, 2023 10:28 pm

ScubaHogg wrote: ↑Mon Feb 13, 2023 4:36 pm I’ve been curious if a dividend screen acts as some kind of “conservative company management” screen. Never investigated though

As I mentioned early, almost all dividend-focused ETFs will show significant factor loading in the Investment and Profitability factors in the Fama-French model, and the Quality factor in the AQR model.

I don’t know that this is the same thing as a filter on management, but maybe it is

The Investment factor is calculated as Conservative minus Aggressive, CMA. If you have a positive number than the stock or ETF would be considered to invest "conservatively", which has outperformed aggressive historically.

ScubaHogg wrote: ↑Mon Feb 13, 2023 4:36 pm I’ve been curious if a dividend screen acts as some kind of “conservative company management” screen. Never investigated though

As I mentioned early, almost all dividend-focused ETFs will show significant factor loading in the Investment and Profitability factors in the Fama-French model, and the Quality factor in the AQR model.

One who held just TSM, another who opted for thirds TSM/Global exc. US/SCV ... and the differences may just be noise PV Indeed, we are limited in our ability to predict anything by these noisy back tests. The other thing is, just looking at total return and standard deviation can be somewhat misleading. You can achieve a smoother overall rate of return, despite having higher standard deviation, due to the zigging and zagging nature of diversified portfolios. Since 1997: DFSVX (small cap value) market correlation = 0.85 VTSMX (total international) market correlation = 0.86 You'll hear on this forum repeatedly how international "zigs" while US TSM "zags", and it is a worthy argument for holding international. However, in ...

What dividend funds do in factor-town is load slightly on value, investment, and profitability. Running regressions on portfolio visualizer, across the board, almost all dividend funds do this. But they lower their exposure to the market factor, sometimes as low as 0.8. Thus, they will have lower drawdowns and lower standard deviations but at the cost of forgoing the full market return. If value, investment, and profitability perform well over a specific time period then this can make up for the lower market loading and the fund can match its total market counterpart, or even outperform. My takeaway is that high dividend funds will likely slightly trail the total market most years (before taxes) but with less volatility. I wouldn't hold a h...

As a person new to hands-on investing (previously being in a 2055 Target Date fund for the past 10 years) I have spent the better part of the last 5 months deciding whether to tilt or not. Reading, researching and portfolio vizualizing for hours a day. Truly, I can not bring myself to believe that there will be a value premium going forward in the US. Maybe it will. Maybe all these people smarter than me are right. But to me, investing in SCV and thus guaranteeing long term outperformance is too simple and too accessible to know-nothings like me. Among many other reasons, I believe it existed in the past because of the lack of access to good investing information for 99% of the population and a complete lack of retail index funds allowing o...

I have 3 accounts with my main long-term holdings, a 403b, a Roth IRA, and a Taxable account.

I have set them up to have the exact same holdings 70/30 Us/Intl
50% VTI
20% AVUV
20% VXUS
5% AVDV
5% AVES

There might be a more tax efficient way to keep certain holdings in the tax-deferred, but doing this has made it easier to rebalance when new funds come in.

However, in my 403b (Fidelity Brokeragelink), I am forced to reinvest the dividends (I can not choose for them to go into the money market fund in the account).

Does this mean if I try to TLH in my taxable account, and a dividend reinvestment happens in my 403b, it would trigger a wash sale?

student wrote: ↑Wed Feb 01, 2023 10:06 pm Yes. This is laddering and many people use it. Currently, I have moved from HYSA to t-bills.

It seems like a no-brainer to do this with your "cash" or "fixed income".

Hi All,

Still on my learning journey.

Currently have all my cash emergency expenses in a Capital one HYSA yielding 3.3%

Would it make sense instead to put like 90% of this cash in various duration T-bills yielding 4.6%+ (and without state tax here in CA)?

I was thinking just put like 10% in a 4wk, 10% in 8wk, etc and then every month I'll have another bill reach maturity then I can just purchase another one with the funds.

Is this called laddering?

Is there anything else I should consider about this plan?

Thanks for your help!

I have a Rolex OP Datejust from 2006. Beautiful little watch.

I liked everything you had to say except the "buying one every 2-3 years."

Personally, I feel there is no point in owning more than like 5 watches. Buy a couple nice ones, and wear them forever. You'll be happier with less than with more. The goal is to have "enough", as are the words of Jack Bogle.

placeholder wrote: ↑Fri Jan 27, 2023 8:39 pm

rushrocker wrote: ↑Fri Jan 27, 2023 6:43 pm Thank you both, this all makes sense now.

I was wondering how people who had been investing for 20+ years could TLH when they only held 3 funds, and now I understand.

You of course have to be careful not to buy the same fund back during the exclusion period if you want to avoid wash sales which most people other than livesoft want to do.

Gotcha. Thank you!

Thank you both, this all makes sense now.

I was wondering how people who had been investing for 20+ years could TLH when they only held 3 funds, and now I understand.

I had a follow up question which is really what my original question was, but hopefully this is more clear:

If I bought 1000 shares of VTI on Jan 1, 2015, and sold them today there would be a large gain.

However if I bought an additional 1000 shares on Jan 1, 2022, those specific shares would have lost money.

I noticed on Fidelity, I can specify which shares to sell. So if I sold these Jan 2022 shares, would I be able to tax loss harvest with them? Or are all the shares somehow "combined" and because of the large gain on the 2015 shares I can't TLH?

I have been thinking a lot about the persistence of the small cap value premium lately. Will it persist and why? I'd love to get a factor tilter's opinion on the below: There is no longer a barrier to entry to own these stocks: The premium that did exist might have only existed because it was too difficult to invest in these companies in the past. No one knew about the lemonade stand. Therefore, there might have been inefficiencies that could have been taken advantage of, or missed, by investors. Today, anyone from around the world can research and buy one of hundreds of small cap value ETFs in a matter of minutes. Thus, with more knowledge and liquidity, the pricing of the small value market is more accurate than ever before, and that's wh...

foundrycondition wrote: ↑Mon Jan 23, 2023 10:56 pm ETF.com has a tool that allows you to look up inflow/outflow based on a specified time range and/or tickers. It doesn't show net AUM exactly but you can play around with it

This is nice, thank you. You can look up individual ETFs which is cool

I was reading an article in Forbes today and it noted that investors have put more money into SCHD than they have any other ETF this year.

It got me thinking I'd love to see this list (and then avoid 99% of the ETFs on it haha), but Google has not helped me thus far.

Except that goes against everything we know about the active management industry, the Quality factor, and that riskier stocks, sectors and regions have a history of underperforming. Again, factor slants aren't the same as standard stock-picking active management. Small cap value is riskier than and has historically out-performed the market, so the blanket statement 'riskier stocks have a history of under-performing' is fallacious. They're exactly the same, because any active stock picking strategy will have an explanation for why it works, too. So if Small-Cap Value logically yields a higher return because these are riskier businesses, then why wouldn't Vietnamese micro-cap financial stocks also necessarily yield an excess return? What abo...

I'd like to point out that in the Vietnamese Micro Cap analogy, the actual reason for a higher return is being ignored, value. The country of origin and size of the stock are mostly irrelevant (though to some degree, size is).

If this micro-cap stock had strong price fundamentals relative to its earnings then one could it assume it to be a "value" stock, and have the potential for more return in the future.

If markets are 100% efficient, then everything about that stock's price is already baked in, to so speak, and you would not expect a higher relative return.

If markets aren't efficient, then there's a chance its underpriced and if the company succeeded you'd return more than the market average.

They're exactly the same, because any active stock picking strategy will have an explanation for why it works, too. So if Small-Cap Value logically yields a higher return because these are riskier businesses, then why wouldn't Vietnamese micro-cap financial stocks also necessarily yield an excess return? What about Sudanese blockchain businesses? Is this a universal rule? Can we find riskier stocks than US SCV, and inevitably generate even higher returns? Or are we just applying it selectively to explain a specific result? The same SCV premium was found across many international countries. Risk would not be perfectly correlated with reward in markets, unless markets are perfectly efficient. That being said, SCV is generally around only 0.8...

The argument for cap-weighting is that it's always beaten the average active bet against the market (after costs). Of which a factor-tilted portfolio is. No, you're equating actively managed stock picking with factor slants which are structured very much like index fund; they just aren't MCW. Factor slants have consistently out-performed market weights. https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2023&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviatio...

As is apparent from the many strongly held but divergent opinions on this question, intelligent and informed investors can look at the same set of facts and come to contradictory or opposite opinions. Whether to tilt or not, and if so, by how much? Since truth is elusive and all we have here are opinions, I'll offer mine too. Multi-factor funds in aggregate have been a massive disappointment to factor mavens, consistently underperforming one factor beta (VTI) since their inception. What this clearly demonstrates is the difficulty of executing a complex strategy with many moving parts in real time--which factors to use at which portfolio weights, and when to buy or sell each and switch to another. A portfolio that has so many moving portfol...

Not really. I think it makes investing feel more interesting . But the results of mild value, small-cap, international, etc. tilts tend to be so negligible, and improved risk/return characteristics so unreliable. aka more interesting.. What I would do, personally, after years of backtesting every idea I've had, is use sector overweights to manage risk, more so than bonds (which, with the exception of TIPS, I don't think are generally worth holding). I think there are more efficient and reliable ways to manage risk. So the sectors I'd overweight are Consumer Staples, Healthcare and Energy. I think the amount of protection businesses in those sectors provide (against recession, the first two, and inflation, the third), because of the nature ...

Not really. I think it makes investing feel more interesting . But the results of mild value, small-cap, international, etc. tilts tend to be so negligible, and improved risk/return characteristics so unreliable. aka more interesting.. What I would do, personally, after years of backtesting every idea I've had, is use sector overweights to manage risk, more so than bonds (which, with the exception of TIPS, I don't think are generally worth holding). I think there are more efficient and reliable ways to manage risk. So the sectors I'd overweight are Consumer Staples, Healthcare and Energy. I think the amount of protection businesses in those sectors provide (against recession, the first two, and inflation, the third), because of the nature ...

My very first investment into a ROTH IRA was last January 2022. The prior year in 2021, I had put 2 years of lump sum into it for 2020/2021, but being a complete novice, I didn't realize I had to purchase something with the money in the account. So it just sat there, doing nothing, for an entire year. As an aside, and having spent the last 3 months researching investing for 4+ hours per day after learning of my follies (I'm obsessed), I agree with Ben Felix and think the lack of financial literacy in the general population is a huge issue. Not even my parents, who are retired, smart and have great investments, told me I had to actually buy something or explained how a ROTH IRA works in my entire life. No where in my schooling (USA, Califor...

I would compare the Morningstar thermometer graphs with data from Portfolio Visualizer. It helps to get additional perspective, the Morningstar graphs don't tell the whole story. I read into the morningstar methodology. What's interesting is their "Quality" metric, seems to be vasty different from any quality factor I can find on PV. Yes, there were differences between what I saw with the Morningstar Thermometer Graphs and what I saw from the data at Portfolio Visualizer. So what I am saying is don't get all of your information based upon one source. The Thermometer Graphs at Morningstar are helpful but I wouldn't base my entire factor analysis on that. I was doing visual comparisons between iShares S&P 600 Small Cap Value In...