Where do mid-caps fit it?

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BogleAlltheWay
Posts: 307
Joined: Mon May 15, 2017 5:25 pm

Where do mid-caps fit it?

Post by BogleAlltheWay » Tue Sep 19, 2017 7:37 pm

Hi all,
I have read many past posts that describe sample portfolios. For example, the Coffee House portfolio calls for the equity portion to be
25% large cap
25% large value
25% small cap
25% small value

Large cap and small cap funds have mid caps mixed in but how I do I tell how much of each large, mid and small cap are being recommended by the portfolios?

Are there recommended minimum and maximum percentages for small, mid and large caps?

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JMacDonald
Posts: 2000
Joined: Mon Feb 19, 2007 5:53 pm

Re: Where do mid-caps fit it?

Post by JMacDonald » Tue Sep 19, 2017 7:44 pm

BogleAlltheWay wrote:
Tue Sep 19, 2017 7:37 pm
Hi all,
I have read many past posts that describe sample portfolios. For example, the Coffee House portfolio calls for the equity portion to be
25% large cap
25% large value
25% small cap
25% small value

Large cap and small cap funds have mid caps mixed in but how I do I tell how much of each large, mid and small cap are being recommended by the portfolios?

Are there recommended minimum and maximum percentages for small, mid and large caps?
Check out some of these conversations: https://www.google.com/search?sitesearc ... ed+midcaps
Best Wishes, | Joe

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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Where do mid-caps fit it?

Post by FiveK » Tue Sep 19, 2017 7:47 pm

BogleAlltheWay wrote:
Tue Sep 19, 2017 7:37 pm
Are there recommended minimum and maximum percentages for small, mid and large caps?
No.

Or, perhaps stated better, none universally agreed-on.

See Mid caps - Bogleheads for more. Also Approximating total stock market - Bogleheads.

BogleAlltheWay
Posts: 307
Joined: Mon May 15, 2017 5:25 pm

Re: Where do mid-caps fit it?

Post by BogleAlltheWay » Tue Sep 19, 2017 10:10 pm

From what I have read on here, it seems the majority of posters are at market weight or 50% large and 50% small.

livesoft
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Re: Where do mid-caps fit it?

Post by livesoft » Tue Sep 19, 2017 10:13 pm

BogleAlltheWay wrote:
Tue Sep 19, 2017 7:37 pm
but how I do I tell how much of each large, mid and small cap are being recommended by the portfolios?
Learn to use an X-ray analysis at morningstar.com.
This signature message sponsored by sscritic: Learn to fish.

MikeG62
Posts: 459
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Where do mid-caps fit it?

Post by MikeG62 » Wed Sep 20, 2017 7:50 am

I can't comment on the specific portfolios you are looking at, but here is my rough target equity allocation (FWIW):

LC ~40%
MC ~20%
SC ~20%
International (including EM) ~20%

I do not split between growth and value and I use very low cost broad-based index ETF's for the vast majority of my equity investing.

avalpert
Posts: 5934
Joined: Sat Mar 22, 2008 4:58 pm

Re: Where do mid-caps fit it?

Post by avalpert » Wed Sep 20, 2017 8:18 am

large/mid/small cap labels are arbitrary and used differently by different index and fund providers - so I don't see any reason to target set percentages of them for their own sake.

What are you looking to accomplish in your portfolio strategy? Once you know that you don't need recommended targets for arbitrary classification - the resulting distribution will take care of itself.

stan1
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Joined: Mon Oct 08, 2007 4:35 pm

Re: Where do mid-caps fit it?

Post by stan1 » Wed Sep 20, 2017 8:26 am

Right, there's no standard definition for mid-cap and small cap. So you'll find that Morningstar considers 42% of the Vanguard Small Cap fund to be mid-caps (and oh by the way Morningstar also says Vanguard Small Cap has a growth tilt).

BogleAlltheWay
Posts: 307
Joined: Mon May 15, 2017 5:25 pm

Re: Where do mid-caps fit it?

Post by BogleAlltheWay » Wed Sep 20, 2017 8:59 am

avalpert wrote:
Wed Sep 20, 2017 8:18 am
large/mid/small cap labels are arbitrary and used differently by different index and fund providers - so I don't see any reason to target set percentages of them for their own sake.

What are you looking to accomplish in your portfolio strategy? Once you know that you don't need recommended targets for arbitrary classification - the resulting distribution will take care of itself.
I prefer to hold more than the market weight of small caps, but trying to decide how much more.

avalpert
Posts: 5934
Joined: Sat Mar 22, 2008 4:58 pm

Re: Where do mid-caps fit it?

Post by avalpert » Wed Sep 20, 2017 9:10 am

BogleAlltheWay wrote:
Wed Sep 20, 2017 8:59 am
avalpert wrote:
Wed Sep 20, 2017 8:18 am
large/mid/small cap labels are arbitrary and used differently by different index and fund providers - so I don't see any reason to target set percentages of them for their own sake.

What are you looking to accomplish in your portfolio strategy? Once you know that you don't need recommended targets for arbitrary classification - the resulting distribution will take care of itself.
I prefer to hold more than the market weight of small caps, but trying to decide how much more.
Then you don't need to target 'midcaps' at all - you can decide how you want to define your small cap tilt (I would recommend a target SmB factor exposure but you could just say X in morningstar small style box or X% in a small-cap fund) and just hold a mix of a total market fund and small cap fund to hit your target. The large/mid %, however defined, will take care of themselves as an outcome of your desired tilt.

BogleAlltheWay
Posts: 307
Joined: Mon May 15, 2017 5:25 pm

Re: Where do mid-caps fit it?

Post by BogleAlltheWay » Wed Sep 20, 2017 9:21 am

avalpert wrote:
Wed Sep 20, 2017 9:10 am
BogleAlltheWay wrote:
Wed Sep 20, 2017 8:59 am
avalpert wrote:
Wed Sep 20, 2017 8:18 am
large/mid/small cap labels are arbitrary and used differently by different index and fund providers - so I don't see any reason to target set percentages of them for their own sake.

What are you looking to accomplish in your portfolio strategy? Once you know that you don't need recommended targets for arbitrary classification - the resulting distribution will take care of itself.
I prefer to hold more than the market weight of small caps, but trying to decide how much more.
Then you don't need to target 'midcaps' at all - you can decide how you want to define your small cap tilt (I would recommend a target SmB factor exposure but you could just say X in morningstar small style box or X% in a small-cap fund) and just hold a mix of a total market fund and small cap fund to hit your target. The large/mid %, however defined, will take care of themselves as an outcome of your desired tilt.
How do I come up with a target SMB?

avalpert
Posts: 5934
Joined: Sat Mar 22, 2008 4:58 pm

Re: Where do mid-caps fit it?

Post by avalpert » Wed Sep 20, 2017 9:53 am

BogleAlltheWay wrote:
Wed Sep 20, 2017 9:21 am
avalpert wrote:
Wed Sep 20, 2017 9:10 am
BogleAlltheWay wrote:
Wed Sep 20, 2017 8:59 am
avalpert wrote:
Wed Sep 20, 2017 8:18 am
large/mid/small cap labels are arbitrary and used differently by different index and fund providers - so I don't see any reason to target set percentages of them for their own sake.

What are you looking to accomplish in your portfolio strategy? Once you know that you don't need recommended targets for arbitrary classification - the resulting distribution will take care of itself.
I prefer to hold more than the market weight of small caps, but trying to decide how much more.
Then you don't need to target 'midcaps' at all - you can decide how you want to define your small cap tilt (I would recommend a target SmB factor exposure but you could just say X in morningstar small style box or X% in a small-cap fund) and just hold a mix of a total market fund and small cap fund to hit your target. The large/mid %, however defined, will take care of themselves as an outcome of your desired tilt.
How do I come up with a target SMB?
You guess. Okay, a little more seriously, you should try to balance your need for risk with your ability and willingness to take it. I think this post may be helpful in illustrating one approach to doing that and this classic compendium of posts/papers/ideas from Robert T should give you plenty of guidance to work with.

You could just choose to mimic one of the model portfolios out there - my concern with that is if people don't understand why that portfolio is constructed the way it is and what you should expect from it they are unlikely to stick with it when performance suffers.

rkhusky
Posts: 4312
Joined: Thu Aug 18, 2011 8:09 pm

Re: Where do mid-caps fit it?

Post by rkhusky » Wed Sep 20, 2017 11:09 am

avalpert wrote:
Wed Sep 20, 2017 9:53 am
You guess.
That's actually the best answer, because no one knows which segment of the market is going to perform better over the next 5, 10, or 20 years. It's expected that, because small stocks tend to be more volatile than large stocks, they will, over the long haul, out-perform large stocks. Note the part about volatility. If you are a big risk taker, then you could go all small cap. If you are more conservative, you could go all large cap. If you are middle of the road, you could go with Total Stock Market. If you are a little risk taker, you could go 80/20 Total Stock/Small Cap.

BogleAlltheWay
Posts: 307
Joined: Mon May 15, 2017 5:25 pm

Re: Where do mid-caps fit it?

Post by BogleAlltheWay » Wed Sep 20, 2017 1:14 pm

rkhusky wrote:
Wed Sep 20, 2017 11:09 am
avalpert wrote:
Wed Sep 20, 2017 9:53 am
You guess.
That's actually the best answer, because no one knows which segment of the market is going to perform better over the next 5, 10, or 20 years. It's expected that, because small stocks tend to be more volatile than large stocks, they will, over the long haul, out-perform large stocks. Note the part about volatility. If you are a big risk taker, then you could go all small cap. If you are more conservative, you could go all large cap. If you are middle of the road, you could go with Total Stock Market. If you are a little risk taker, you could go 80/20 Total Stock/Small Cap.
I do know that I want to own a piece of everything because as you guys mentioned, no one knows what happen.

@avalpert Thanks for the link. I got alot of reading to do.

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