AA - Too Heavy Of A Small Cap Tilt?

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MindTheGAAP
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AA - Too Heavy Of A Small Cap Tilt?

Post by MindTheGAAP » Tue Jan 09, 2018 1:32 pm

BH -

Wanted to determine if I'm being overly crazy with my small/mid-cap tilt in my portfolio. Background is: nearing 30, MFJ, expect to be in the 28% bracket when all said and done for 2017. Goal AA: 80/20 with a 60/40 split on Domestic/Int'l Equities.

Current Portfolio:
  • Taxable - 7%
  • Roth - 35%
  • Traditional - 58%
Bonds (20.8%)
  • Total Bond Market Index Fund (VBLTX) - 20.8%
Domestic Equities (47.2%)
  • [Total Stock Market (VTSAX) - 27.4%
  • Tax Managed Small Cap Fund {S&P 600, Small and Micro Cap} (VTMSX) - 10%
  • Small Cap Value Index (VSIAX) - 9.9%
Int'l Equities (31.9%)
  • Total International (VGTSX) - 10.9%
  • FTSE All World Small Cap ex-US (VFSVX) - 13.3%
  • Emerging Markets Index Fund (VEMAX) - 7.8%

Using M*, I have calculated that my current portfolio tilts as follows (looking only at size and Developed/Emerging, I have a Value tilt from VSIAX but not the area I'm asking about herein):

Size Tilt:
Large Cap: 44.37% vs. < Large Cap of 55.63%. This breaks out as 57.72% of domestic equities and 52.54% of int'l equities.

Developed vs. Emerging
12.78% of my portfolio is Emerging (leaving 87.22% as Developed) on an aggregate basis. 31.29% of my Int'l is EM vs. 68.71% as Developed.

Question related to the above: am I too aggressive (in your opinion) on Small/Mid Cap weighting? I don't feel like my EM weighting is terribly heavy, but more concerned that my size tilt is over-done.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

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jhfenton
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by jhfenton » Tue Jan 09, 2018 2:09 pm

I tilt even more, so I don't think so. On the international side, I dropped our large cap developed entirely, and we only own small cap (VSS/VFSVX) and emerging markets (VEMAX). On the U.S. side I only have 10% large cap. A majority of our large cap is emerging markets. (We're 50/50 U.S./ex-US.)

MindTheGAAP
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by MindTheGAAP » Tue Jan 09, 2018 2:22 pm

jhfenton wrote:
Tue Jan 09, 2018 2:09 pm
I tilt even more, so I don't think so. On the international side, I dropped our large cap developed entirely, and we only own small cap (VSS/VFSVX) and emerging markets (VEMAX). On the U.S. side I only have 10% large cap. A majority of our large cap is emerging markets. (We're 50/50 U.S./ex-US.)
Thank you for your response! Stupid question - how did you go about building out your 9-boxer? Did you do it in Excel or is there an online tool that simplifies it?
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

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jhfenton
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by jhfenton » Tue Jan 09, 2018 2:27 pm

MindTheGAAP wrote:
Tue Jan 09, 2018 2:22 pm
jhfenton wrote:
Tue Jan 09, 2018 2:09 pm
I tilt even more, so I don't think so. On the international side, I dropped our large cap developed entirely, and we only own small cap (VSS/VFSVX) and emerging markets (VEMAX). On the U.S. side I only have 10% large cap. A majority of our large cap is emerging markets. (We're 50/50 U.S./ex-US.)
Thank you for your response! Stupid question - how did you go about building out your 9-boxer? Did you do it in Excel or is there an online tool that simplifies it?
It's the Morningstar Portfolio Manager, with the Portfolio X-Ray opened up in their iPad app. The Portfolio Manager is free on their website for you to manually enter and save your holdings. You have to be a Premium Member to view the resulting x-ray of your portfolio on the website, but not in their iPad app. I just took a screenshot on the iPad and cropped.

MindTheGAAP
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by MindTheGAAP » Tue Jan 09, 2018 2:28 pm

What an interesting quirk! Thanks for the info
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

staythecourse
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by staythecourse » Tue Jan 09, 2018 2:33 pm

Not really answering your question, but a piece of advice. Doesn't really matter what you do just do it. I'm always a bit concerned when folks start talking about asset allocation in decimal points.

If you are a young investor I can guarantee your end wealth will have much more to do with how much you save and staying the course with a low cost tax efficient options then any specific %. Asset allocation has becomes quite sexy to talk about, but is way overblown. Just choose something and go with it.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

MindTheGAAP
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by MindTheGAAP » Tue Jan 09, 2018 2:52 pm

staythecourse wrote:
Tue Jan 09, 2018 2:33 pm
Not really answering your question, but a piece of advice. Doesn't really matter what you do just do it. I'm always a bit concerned when folks start talking about asset allocation in decimal points.

If you are a young investor I can guarantee your end wealth will have much more to do with how much you save and staying the course with a low cost tax efficient options then any specific %. Asset allocation has becomes quite sexy to talk about, but is way overblown. Just choose something and go with it.

Good luck.
Thank you - the spreadsheet I use was to 1dp and so I used those so I didn't end up =/= 100% and looking like a complete fool! Savings rate will have a bigger impact, you're right - I should probably just leave it alone and continue on my merry way.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

staythecourse
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by staythecourse » Tue Jan 09, 2018 3:05 pm

MindTheGAAP wrote:
Tue Jan 09, 2018 2:52 pm
staythecourse wrote:
Tue Jan 09, 2018 2:33 pm
Not really answering your question, but a piece of advice. Doesn't really matter what you do just do it. I'm always a bit concerned when folks start talking about asset allocation in decimal points.

If you are a young investor I can guarantee your end wealth will have much more to do with how much you save and staying the course with a low cost tax efficient options then any specific %. Asset allocation has becomes quite sexy to talk about, but is way overblown. Just choose something and go with it.

Good luck.
Thank you - the spreadsheet I use was to 1dp and so I used those so I didn't end up =/= 100% and looking like a complete fool! Savings rate will have a bigger impact, you're right - I should probably just leave it alone and continue on my merry way.
No problem. It is great you take it so serious I wish everyone took their personal finance so serious. Just don't lose sight of the forest through the trees.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

livesoft
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by livesoft » Tue Jan 09, 2018 3:33 pm

Can you please show me the 9-box style grid numbers for
a) Total Portfolio
b) US only
c) Foreign only

See this post: viewtopic.php?p=2248876#p2248876
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MindTheGAAP
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by MindTheGAAP » Tue Jan 09, 2018 3:46 pm

livesoft wrote:
Tue Jan 09, 2018 3:33 pm
Can you please show me the 9-box style grid numbers for
a) Total Portfolio
b) US only
c) Foreign only

See this post: viewtopic.php?p=2248876#p2248876
I don't have Premium or access to an iPad currently so am unable to provide. Will see if the old iPad will fire up tonight
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

rkhusky
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by rkhusky » Tue Jan 09, 2018 4:10 pm

There are some who recommend 100% small value for stocks, but increase bonds to something like 50-60%.

MindTheGAAP
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by MindTheGAAP » Tue Jan 09, 2018 4:49 pm

livesoft wrote:
Tue Jan 09, 2018 3:33 pm
Can you please show me the 9-box style grid numbers for
a) Total Portfolio
b) US only
c) Foreign only

See this post: viewtopic.php?p=2248876#p2248876
I just did it manually in a spreadsheet (duh) to come up with the boxes. See below:

TOTAL PORTFOLIO
15 15 15
09 09 08
11 10 08

DOMESTIC ONLY
14 14 15
07 07 05
14 14 11

INT'L ONLY
16 16 16
12 12 13
07 05 03
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

livesoft
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by livesoft » Tue Jan 09, 2018 4:56 pm

You do not have too heavy of a small cap tilt in my opinion. I like the top row to sum between 45 and 50. Thus you could have more US large caps. 2017 was not kind to the US small-cap value asset class.
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MindTheGAAP
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by MindTheGAAP » Tue Jan 09, 2018 5:02 pm

livesoft wrote:
Tue Jan 09, 2018 4:56 pm
You do not have too heavy of a small cap tilt in my opinion. I like the top row to sum between 45 and 50. Thus you could have more US large caps. 2017 was not kind to the US small-cap value asset class.
So based on your own 45-50 barometer I'm just squeaking into that range on a consolidated basis but just shy on domestic-only, no? Would be coming in on the light side of things but not terribly so.

Looking at these style boxes actually gave me some comfort over the balance - I may end up dropping some of the Small/Micro (VTMSX) for more Small/Mid cap fund (VSIAX) and it would balance it more so.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

livesoft
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by livesoft » Tue Jan 09, 2018 5:06 pm

MindTheGAAP wrote:
Tue Jan 09, 2018 5:02 pm
So based on your own 45-50 barometer I'm just squeaking into that range on a consolidated basis but just shy on domestic-only, no? Would be coming in on the light side of things but not terribly so.
Correct.

With an 80/20 AA, you can use Vanguard LifeStrategy Growth fund as a benchmark fund to compare the performance of your portfolio with.
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Longtermgrowth
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by Longtermgrowth » Tue Jan 09, 2018 5:42 pm

I just checked my ETFs on Morningstar Instant X-Ray, within a few percentage of the last value that I remember. I'd like less in large value and more in mid value without having to add another ETF...

Total Portfolio
31 16 16
08 06 03
10 07 03

Does this free Instant X-Ray link work for you? http://portfolio.morningstar.com/RtPort ... =0.7055475

TheHouse7
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by TheHouse7 » Tue Jan 09, 2018 6:53 pm

No, less than 10% is not even a tilt :P
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

MindTheGAAP
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by MindTheGAAP » Tue Jan 09, 2018 10:23 pm

livesoft wrote:
Tue Jan 09, 2018 5:06 pm
MindTheGAAP wrote:
Tue Jan 09, 2018 5:02 pm
So based on your own 45-50 barometer I'm just squeaking into that range on a consolidated basis but just shy on domestic-only, no? Would be coming in on the light side of things but not terribly so.
Correct.

With an 80/20 AA, you can use Vanguard LifeStrategy Growth fund as a benchmark fund to compare the performance of your portfolio with.
Thanks - looks like mine lagged that by a little last year (16.9% vs 19.21%) but part of it may be that I put a whole lot in beginning April of 2017 relative to my beginning assets. Should be interesting to see how it looks this year since Int’l allocation appears very similar, too.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

livesoft
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by livesoft » Wed Jan 10, 2018 5:14 am

MindTheGAAP wrote:
Tue Jan 09, 2018 10:23 pm
Thanks - looks like mine lagged that by a little last year (16.9% vs 19.21%) but part of it may be that I put a whole lot in beginning April of 2017 relative to my beginning assets. Should be interesting to see how it looks this year since Int’l allocation appears very similar, too.
Then you can go to morningstar.com and chart the "growth of" VASGX from April to year-end and test your hypothesis.
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minimalistmarc
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by minimalistmarc » Wed Jan 10, 2018 6:40 am

I don't understand the point of tilting to small caps in an 80:20 portfolio.

If you want to increase volatility and returns, why not just go to 100% equities and keep it simple?

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jhfenton
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Re: AA - Too Heavy Of A Small Cap Tilt?

Post by jhfenton » Wed Jan 10, 2018 8:39 am

minimalistmarc wrote:
Wed Jan 10, 2018 6:40 am
I don't understand the point of tilting to small caps in an 80:20 portfolio.

If you want to increase volatility and returns, why not just go to 100% equities and keep it simple?
That's the exact opposite of the "Larry Portfolio" strategy often recommended: tilt to small value (or other potentially more volatile and higher returning asset classes) and add some bonds to bring volatility (and return) back down to baseline. The result, in theory, is similar returns with lower left tail risk.

Besides, we've been 100% equities with a large small cap and emerging markets tilt since the late 90's. Why would adding some bonds as we get <15 years from retirement change our equity mix?

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