Rationale for adding VVIAX & VEXAX?

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kw79383
Posts: 19
Joined: Wed Dec 13, 2017 9:52 am

Rationale for adding VVIAX & VEXAX?

Post by kw79383 » Tue Apr 10, 2018 11:03 pm

Hi bogleheads,

I recently started using Vanguard's Personal Advisor Services to help with my transition from another brokerage. I'm planning on using the service for maybe about a year before switching to fully managing it all completely on my own.

A little background: I'm 26 and have both a Roth IRA and taxable account with Vanguard. All of the money I have in these accounts are earmarked for retirement and therefore I'm fine with being aggressive. My AA is 90/10.

The PAS gave me mostly a typical 4 fund portfolio (Total US Stock, Total US Bond, Total Int'l Stock, Total Int'l Bond) which is what I was expecting. They also added in 2 funds though: Vanguard Value Index Fund Admiral Shares (VVIAX) & Vanguard Extended Market Index Fund Admiral Shares (VEXAX). From what I've read, one has a focus on large cap while the other has a focus on medium & small cap. I also see they both are rated either a 4 or 5 in terms of Vanguard's risk rating.

I'd love any boglehead wisdom on possible rationales for why PAS might add these funds to an otherwise simple 4 fund portfolio. I'm 100% fine with trusting PAS for now but I'm just trying to continue to learn and understand what exactly is happening with my portfolio. Any feedback is appreciated :)

johan851
Posts: 109
Joined: Sun Apr 17, 2011 12:59 pm

Re: Rationale for adding VVIAX & VEXAX?

Post by johan851 » Tue Apr 10, 2018 11:43 pm

Adding these funds is one way to tilt your portfolio towards value stocks, and possibly small cap stocks as well. If you search around the site and forum for tilting small value you'll find a lot of information.

Here's a start:
Value tilting wiki: https://www.bogleheads.org/wiki/Value_tilting_-_stock
Informative thread on the topic: viewtopic.php?t=193537

Vanguard Value Index contains mostly larger cap value stocks. Vanguard Extended Market Index contains mostly mid and small cap stocks - it's a completion index for the S&P 500, so it's basically everything but the ~500 largest companies in the US.

There are a lot of ways to accomplish this "tilt". Most who tilt to small value start with a market weight portfolio and simply add an allocation to a fund like Vanguard Small-Cap Value Index.

What percentages of each did the adviser recommend? I'm not sure if the extended market fund it being used to complete the value fund and bring the portfolio back to market weight, or if it's being used to overweight small caps.

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BL
Posts: 8168
Joined: Sun Mar 01, 2009 2:28 pm

Re: Rationale for adding VVIAX & VEXAX?

Post by BL » Tue Apr 10, 2018 11:54 pm

You might like to find out more about them from Morningstar.com where a lot of us go to learn about various funds. Just put the ticker in the search box (or Google the ticker and click on the morningstar link that will show up.) Of course we are also supposed to read the prospectus on every fund we buy, which you can find online at Vanguard, for detailed description and information on each fund.

It is pretty hard to find an expensive fund at V. I expect it is because you are being aggressive with only 10% bonds so that it wouldn't make sense to get several bonds and they are helping you do a little tilt instead. What are the %s of each fund? I wouldn't worry much about it, except for learning about them and looking up the ER (Expense Ratio) which shows the cost per year. I am guessing they are mainly below 0.2% ER. It is very easy to get over 1% ERs at other advisers or brokerages.

If you were managing it by yourself, the 3-fund portfolio would be just fine, too, or a Target fund would work as well.

Here is a great pdf to get you started on investing and other personal finance issues:
https://www.etf.com/docs/IfYouCan.pdf

tibbitts
Posts: 7794
Joined: Tue Feb 27, 2007 6:50 pm

Re: Rationale for adding VVIAX & VEXAX?

Post by tibbitts » Wed Apr 11, 2018 7:48 am

kw79383 wrote:
Tue Apr 10, 2018 11:03 pm
Hi bogleheads,

I recently started using Vanguard's Personal Advisor Services to help with my transition from another brokerage. I'm planning on using the service for maybe about a year before switching to fully managing it all completely on my own.

A little background: I'm 26 and have both a Roth IRA and taxable account with Vanguard. All of the money I have in these accounts are earmarked for retirement and therefore I'm fine with being aggressive. My AA is 90/10.

The PAS gave me mostly a typical 4 fund portfolio (Total US Stock, Total US Bond, Total Int'l Stock, Total Int'l Bond) which is what I was expecting. They also added in 2 funds though: Vanguard Value Index Fund Admiral Shares (VVIAX) & Vanguard Extended Market Index Fund Admiral Shares (VEXAX). From what I've read, one has a focus on large cap while the other has a focus on medium & small cap. I also see they both are rated either a 4 or 5 in terms of Vanguard's risk rating.

I'd love any boglehead wisdom on possible rationales for why PAS might add these funds to an otherwise simple 4 fund portfolio. I'm 100% fine with trusting PAS for now but I'm just trying to continue to learn and understand what exactly is happening with my portfolio. Any feedback is appreciated :)
I have the definitive answer: your PAS adviser is sick and tired of the complaints about cookie-cutter PAS portfolios on Bogleheads, so he's doing something about it. Good for him.

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Kalo
Posts: 483
Joined: Sat May 25, 2013 1:01 pm

Re: Rationale for adding VVIAX & VEXAX?

Post by Kalo » Wed Apr 11, 2018 8:27 am

Maybe so you are not so heavily weighted to the biggest companies. I like the idea. I own some value at small, medium and large, in large part because of the concentration of the total stock market fund.

Kalo
"When people say they have a high risk tolerance, what they really mean is that they are willing to make a lot of money." -- Ben Stein/Phil DeMuth - The Little Book of Bullet Proof Investing.

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