US Large Value or Int'l Small for the long term

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Topic Author
gobigrad
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Joined: Tue Oct 02, 2018 9:11 pm

US Large Value or Int'l Small for the long term

Post by gobigrad »

US Large Value or International Small Cap for the next 20-30 years?
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KlingKlang
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Re: US Large Value or Int'l Small for the long term

Post by KlingKlang »

I'm curious how you arrived at those two choices.

My crystal ball is cracked so I have no idea which will do better over the next 20 - 30 years. I would expect International Small to be the more volatile choice.
Topic Author
gobigrad
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Re: US Large Value or Int'l Small for the long term

Post by gobigrad »

My portfolio is:
25% US Total
25% Int'l Total
10% REIT
10% US Small Value
20% Intermediate Bonds
(Looking for last 10% as either small int'l or large value).

I initially had Large Value after reading: All about Asset Allocation by Richard Ferri, The Four Pillars of Investing by William Bernstein.

But I am going through and rereading these and others, I am thinking of switching my IPS to int'l small.
Last edited by gobigrad on Thu Oct 18, 2018 9:37 pm, edited 1 time in total.
bdpb
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Joined: Wed Jun 06, 2007 3:14 pm

Re: US Large Value or Int'l Small for the long term

Post by bdpb »

gobigrad wrote: Thu Oct 18, 2018 6:46 pm My portfolio is:
25% US Total
25% Int'l Total
10% REIT
10% US Small
20% Intermediate Bonds
(Looking for last 10% as either small int'l or large value).

I initially had Large Value after reading: All about Asset Allocation by Richard Ferri, The Four Pillars of Investing by William Bernstein.

But I am going through and rereading these and others, I am thinking of switching my IPS to int'l small.
Usually, combining Small and Value is more efficient than Small or Large Value.

Many folks' equities are divided into the following classes because there are very low expense funds for these classes.

US Total
US Small Cap Value (e.g., VBR)
Intl Total
Intl Small Cap (e.g., VSS)

You should also read stuff by Larry Swedroe. His latest stuff will make you consider other factors beyond Beta, Small and Value.
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siamond
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Re: US Large Value or Int'l Small for the long term

Post by siamond »

The historical evidence for a premium of US Large Value (compared to US Total-Market) is tenuous at best - and I am being polite... See details in this blog post.

The historical evidence for a premium of Int'l Small (compared to Total-Int'l) appears to be there, as you can discover by yourself (if you're spreadsheet-inclined) based on this backtesting spreadsheet. What I read from academic research covering a longer past, the historical evidence is fairly solid. This doesn't mean that a similar premium will keep showing up in the future, mind you, but at least the hypothesis has a decent foundation.

I do invest in Int'l Small. I do NOT invest in US Large Value (but I do have US mid value and US small value positions).
Elysium
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Re: US Large Value or Int'l Small for the long term

Post by Elysium »

I would suggest neither. Just add to your US Total Market and forget it, or you could add more to US Small as well. Either way adding many components is not likely to boost your returns, increase complexity, and make it hard for you to stay the course. The last part is the most important, and one reason most people, and that includes even people on this forum, is high complexity in portfolio and having too many components. Consolidate into large position in small number of components and you'll likely tinker around less and that in turn will make your portfolio earn more.
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Alexa9
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Re: US Large Value or Int'l Small for the long term

Post by Alexa9 »

Why not both? :beer
But I'd have to say the value premium historically is slightly higher than the small premium. Combine the premiums and I would choose small value over either of them alone.
Elysium
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Joined: Mon Apr 02, 2007 6:22 pm

Re: US Large Value or Int'l Small for the long term

Post by Elysium »

Isn't the latest research saying Value premium is not a strong factor anymore, instead profitability is needed in order to make value premium work, and in fact if profitability is present you can ignore value factor alltogether. This is what Fama is stating at least.
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gobigrad
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Re: US Large Value or Int'l Small for the long term

Post by gobigrad »

Thanks for all the info so far.
I have corrected my earlier post. I have US Small Value (not blend)

25% US Total
25% Int'l Total
10% REIT
10% US Small Value
10% Int'l Small (Blend) rather than Large Value ?

20% Intermediate Bonds
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