Comparison/Contrast of Total (or Large) Cap Index Funds to Small Cap Index Funds

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lotr61671
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Joined: Wed Oct 03, 2018 2:36 pm

Comparison/Contrast of Total (or Large) Cap Index Funds to Small Cap Index Funds

Post by lotr61671 » Mon Jun 10, 2019 1:14 pm

Hello,
I am currently in the process of maintaining my Roth IRA account. The company I'm using (Schwab) always pushes their portfolio summary/check-in type products which I use as a way to view a summary of my account in graphic representation.
Based on the risk-profile I set up, it keeps telling me my percentage of small-cap index fund needs to be bigger.

I currently have money in both a total US market index fund and a little in a US Small-Cap Index fund; The Total US Market Fund I know encompasses the total range of companies, with 3% of it's portfolio being small-cap companies.

I'm wondering if it is too repetitive to hold both Total Market and Small-Cap index funds, since they do overlap to a degree with each other?

Or is it a good idea to have some small part of portfolio to have small-cap coverage, as that index fund focuses solely on that market?

I am looking to go the way of the simple 3-Fund portfolio, but is having a 4-Fund portfolio with small-cap overlap a good idea,or a waste?

Thank you!

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: Comparison/Contrast of Total (or Large) Cap Index Funds to Small Cap Index Funds

Post by retiredjg » Mon Jun 10, 2019 1:34 pm

The total stock market contains the market weight of small cap funds. While some people prefer to hold some extra, there is no "need" to hold some extra.
The Total US Market Fund I know encompasses the total range of companies, with 3% of it's portfolio being small-cap companies.
No, it would be a higher number than that.

MotoTrojan
Posts: 4520
Joined: Wed Feb 01, 2017 8:39 pm

Re: Comparison/Contrast of Total (or Large) Cap Index Funds to Small Cap Index Funds

Post by MotoTrojan » Mon Jun 10, 2019 1:51 pm

I personally tilt to small-cap value at a 20/55 ratio (20% of equity is SCV, 55% is Total US) but there is no reason to do this if you don't understand it and accept the risk that it may not win-out.

fennewaldaj
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Joined: Sun Oct 22, 2017 11:30 pm

Re: Comparison/Contrast of Total (or Large) Cap Index Funds to Small Cap Index Funds

Post by fennewaldaj » Tue Jun 11, 2019 4:22 am

If you want to overweight small caps there is nothing wrong with doing it by holding total market funds and small cap funds. That said you should only tilt to small caps if you know why you are doing it.

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

Re: Comparison/Contrast of Total (or Large) Cap Index Funds to Small Cap Index Funds

Post by rkhusky » Tue Jun 11, 2019 5:46 am

lotr61671 wrote:
Mon Jun 10, 2019 1:14 pm
The Total US Market Fund I know encompasses the total range of companies, with 3% of it's portfolio being small-cap companies.
Depends on how you define "small". Morningstar's current definition has Total US with 5.5% in "small" and 0.9% in "micro". They redefined their definitions the beginning of last year to make their "small" smaller. Prior to that, they had Total US with a higher percent in "small" and "micro".

billfromct
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Joined: Tue Dec 03, 2013 9:05 am

Re: Comparison/Contrast of Total (or Large) Cap Index Funds to Small Cap Index Funds

Post by billfromct » Tue Jun 11, 2019 6:11 am

I believe the total stock market index is about 73% large cap, 18% mid cap & 9% small caps, based on market capitalization.

bill

rkhusky
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Re: Comparison/Contrast of Total (or Large) Cap Index Funds to Small Cap Index Funds

Post by rkhusky » Tue Jun 11, 2019 7:56 am

billfromct wrote:
Tue Jun 11, 2019 6:11 am
I believe the total stock market index is about 73% large cap, 18% mid cap & 9% small caps, based on market capitalization.

bill
Sounds like Morningstar's old definitions.

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JoMoney
Posts: 6967
Joined: Tue Jul 23, 2013 5:31 am

Re: Comparison/Contrast of Total (or Large) Cap Index Funds to Small Cap Index Funds

Post by JoMoney » Tue Jun 11, 2019 8:08 am

rkhusky wrote:
Tue Jun 11, 2019 7:56 am
billfromct wrote:
Tue Jun 11, 2019 6:11 am
I believe the total stock market index is about 73% large cap, 18% mid cap & 9% small caps, based on market capitalization.

bill
Sounds like Morningstar's old definitions.
Part of the problem with terms like "Large cap" and "Small Cap" is there is a huge gray area that is "mid-caps".
There's only around 75 stocks larger than the median market cap of the U.S. market.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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