VGT vs VTI

[vanuber]

I am a JL Collins fan and have been mostly investing in VTSAX. However, I also own a lot of MSFT. This stock has done very well for me, but my position is too large and I am gradually selling shares and buying the index. Lately, I have been intrigued with VGT as tech has done very well over the past decade and I don't see this trend changing in the near future.

I realize there is more risk investing in a specific sector versus a total market index, but my risk tolerance is fairly high. I am 40 years old, have about $445K invested and about $65K left on our mortgage. The problem is our household income is low <$40K, so I don't have a lot of new money to invest. Seems like a lot of Bogelheads are high earners where more conservative strategies work well. But with a lower income, I feel like I should take more risk to compensate beyond the index.

I am considering the following equities position:

70% VTI/VTSAX
20% VGT
5% UNH
5% HUM

Who invests in funds outside of the index? Is a mixed fund strategy a good idea? Should I just stick with VTSAX? Any other funds I should consider?

(One consideration is the expense ratio – VGT .10% v/s VTI .03%)

[theorist]

Hello,

Many participants here have holdings beyond VTSAX + bonds. Here are some comments on your particular proposal for funds going beyond those:

— a common holding is international stocks, with some consensus (far from unanimous) being that 20-30% of holdings is well justified. Vanguard itself recommends this for diversification, holding 40% international stocks in its target date funds and lifestrategy funds. US has outperformed recently. Who is to say that continues?

— many people “tilt” the total market with various other holdings. A common justification is the Fama French factors, which you can read about by googling earlier posts here. Roughly, there is an assertion that small cap, value, and/or quality stocks (with a few other “factors” existing as well) may outperform. This outperformance can be very lumpy and show up only over long periods, or perhaps it is now gone; it was found in back tested data. Anyway, a good number of bogleheads hold e.g. small value stocks in excess of their contribution to the total market cap.

— everyone knows that tech companies are going to be huge players in the future. Question is, is this already priced in? They trade at sometimes very large multiples. So even acknowledging the dominant role of tech, it is far from obvious that one should tilt to growth or tech funds.

In fact, as mentioned above, value stocks (the unglamorous, low multiples - trading stocks of companies that do waste management or manufacture consumer goods) have — it is argued — outperformed growth stocks historically.

All that said, growth has beaten value handily in the past few years. It might continue, or might not. Tilting a little to growth or tech, if you’re sure you know it will do * even better * than what people have priced in, isn’t going to be a disaster.

[The expense ratio difference you mention is minimal. Some people here go insane over tiny expense ratio differences, but that will surely be in the noise given the likely performance differences that will emerge in the next years — whichever way they go.]

— finally, I noticed you have 10% in stocks of two companies. United Healthgroup and Humana are great companies, but we all know this. It may be priced in already. So this is a lot of specific risk that could be diversified away — some here would say to cap your investments in single stocks to aggregate of 5% or less.

Enjoy your investing!

[augryphon]

Lately, I have been intrigued with VGT as tech has done very well over the past decade and I don't see this trend changing in the near future.

That's what we all thought in 99 too. The problem is "we all thought" the same damn thing and took a kick in the teeth and wallet.

Over the long term, which is what you are investing for, you can't make a guess every few years and be right every time. 50% of the time you'll take (sometimes big) losses and those losses hurt your portfolio much more than you earn when you are right. Over time, mindless contributions to index funds will beat things your "intrigued with" by a wide margin. If tech is doing well, they'll be plenty in the indexes.

I hope my pain(btw, it still hurts) will be your gain!

[dmcmahon]

I'm very impressed that you've saved $445k on a $40k income. Well done!
You realize your safest investment is paying down the mortgage? It's probably a surer and higher return than any bonds you might buy now.

If you're looking for permission on this board to make a sector bet, good luck! But FWIW let me the first/only one to approve your message! I don't think taking a 20% tilt to tech and growth is a terrible idea. These stocks are heavy weights in the index, and if they continue to do better than the rest of the market, their relative weight will increase. So, in the end, all you're doing is overweighting them a bit more.

But why do that and then buy 2 individual stocks? Also you might want to look under the hood of those tech sector funds, many are heavily invested in just two stocks, AAPL & MSFT. And a lot of the others may be very highly valued (like CRM).

[MotoTrojan]

Lately, I have been intrigued with VGT as tech has done very well over the past decade and I don't see this trend changing in the near future.

That's what we all thought in 99 too. The problem is "we all thought" the same damn thing and took a kick in the teeth and wallet.

Over the long term, which is what you are investing for, you can't make a guess every few years and be right every time. 50% of the time you'll take (sometimes big) losses and those losses hurt your portfolio much more than you earn when you are right. Over time, mindless contributions to index funds will beat things your "intrigued with" by a wide margin. If tech is doing well, they'll be plenty in the indexes.

I hope my pain(btw, it still hurts) will be your gain!

+1. OP you can feel that tech companies will continue to outperform economically (earnings growth), but in order for their stock to also outperform the market they need to beat expectations, not just beat other companies (economically).

Everyone knows that Amazon will stay as the largest e-commerce company for many years to come, and grow much faster than Best Buy, but that doesn't tell you which stock will do better.

Investing in what has done well the past decade is a good way to underperform as well.

[rossington]

It looks as if you are 100% stocks, how can you take on more risk?
At 40 and your current income level the recent market events should make you consider moving a portion of your portfolio to fixed income. At least you will have minimized some risk. You could still do what you are considering within the stock portion of your AA then.
Do you have an emergency fund?

[dru808]

These are all great comments against it

[fwellimort]

People expected internet to be the future in the 1990s. And they were mostly right. In fact, very right.
After the 2000 internet bubble, people despite thinking internet was the future believed it was all priced in and left for other investments.
Of course, today is different from 2000. Today, it's the internet companies profiting and non-internet companies all in debt and unprofitable.

And people predicted 3d printing to be the future. And while they might be right (and most probably are right), the timing currently seems wrong.
The same with energy. People are expecting electric autonomous vehicles to be the near future. But no one knows when that 'timing' is.
The same with asteroid mining or whatever space exploration/invasion (?). But again, no one knows when that 'timing' is.
The same with rise in China (well, they are right on this one. Just taking a much longer time than most people expected).

People tend to predict the future correctly... but a bit too early. Do keep that in mind in case of under-performance in the near future.
You might be rewarded handsomely depending on your time frame but it will be very hard to have the patience to see underperformance for long periods of time.
I for instance am still amazed health care isn't fixed in the US. I believe that 'I know health care system in the US will transform for the better'. But as of when, no real clue in the near future.


I do believe we are in the age of the rise in technolgy. It's no denying that the scalability with computers is incomparable.
In that aspect, I have no doubts that companies that adapt to this age will perform well.

Thing is, a company doesn't have to be a 'internet company' to adapt many of the scalability of today's rise in technology.
If the industry moves toward 3d printing, much of that growth might not be found in traditional internet companies.
If the industry moves toward genome sequencing, much of that growth might not be found in traditional internet companies.
If the industry moves toward autonomous cars, much of that growth might not be found in traditional internet companies.
If the industry moves toward big data, much of that growth might not be found in traditional internet companies.
If the industry moves toward online learning, much of that growth might not be found in traditional internet companies.
If the industry moves toward a breakthrough for affordable medicare. Well.. no idea but that growth might not be captured from traditional companies.

I say this cause Amazon for instance is not included in VGT. Nor Tesla. Nor MSCI. And so on.
I think you should check the actual holdings of VGT. It's missing many 'potentially great' companies.
For instance, Tesla could be the winner of autonomous cars. That growth won't be in VGT.
Or MSCI could gain huge attraction because of the rise for international investing. That growth won't be in VGT.
Or wait... one of the main reason people are attracted to VGT might just not be there. Like... what if Amazon stock isn't actually in the holdings?

What the index defines as "information technology" and what you define as "information technology" might be different (especially towards your investment career).
It's really hard to 'categorize' companies today as many of these successful companies exist in multiple sectors. So what you 'expect' to be investing with your money.... might just not be there in the first place. Please look at your holdings carefully before making decisions.

[dru808]

Tech has always been the next big thing, wasn’t it big in the 20’s,50’s,60’s, radio, tv, phones, watches that you could call on, flying cars? has tech always outperformed the broad market?

[vanuber]

Hello,

Many participants here have holdings beyond VTSAX + bonds. Here are some comments on your particular proposal for funds going beyond those:

— a common holding is international stocks, with some consensus (far from unanimous) being that 20-30% of holdings is well justified. Vanguard itself recommends this for diversification, holding 40% international stocks in its target date funds and lifestrategy funds. US has outperformed recently. Who is to say that continues?

— many people “tilt” the total market with various other holdings. A common justification is the Fama French factors, which you can read about by googling earlier posts here. Roughly, there is an assertion that small cap, value, and/or quality stocks (with a few other “factors” existing as well) may outperform. This outperformance can be very lumpy and show up only over long periods, or perhaps it is now gone; it was found in back tested data. Anyway, a good number of bogleheads hold e.g. small value stocks in excess of their contribution to the total market cap.

— everyone knows that tech companies are going to be huge players in the future. Question is, is this already priced in? They trade at sometimes very large multiples. So even acknowledging the dominant role of tech, it is far from obvious that one should tilt to growth or tech funds.

In fact, as mentioned above, value stocks (the unglamorous, low multiples - trading stocks of companies that do waste management or manufacture consumer goods) have — it is argued — outperformed growth stocks historically.

All that said, growth has beaten value handily in the past few years. It might continue, or might not. Tilting a little to growth or tech, if you’re sure you know it will do * even better * than what people have priced in, isn’t going to be a disaster.

[The expense ratio difference you mention is minimal. Some people here go insane over tiny expense ratio differences, but that will surely be in the noise given the likely performance differences that will emerge in the next years — whichever way they go.]

— finally, I noticed you have 10% in stocks of two companies. United Healthgroup and Humana are great companies, but we all know this. It may be priced in already. So this is a lot of specific risk that could be diversified away — some here would say to cap your investments in single stocks to aggregate of 5% or less.

Enjoy your investing!

A lot of great stuff in your post. Thanks for your response!

Regarding United Healthgroup and Humana, these are stocks that I have had for a long time that have dramatically outperformed the index. I am trying to be responsible and bring them down to 5% of my total portfolio. It is interesting to consider whether these stocks and MSFT have peaked and their growth is "priced in" as you say.

[vanuber]

But FWIW let me the first/only one to approve your message! I don't think taking a 20% tilt to tech and growth is a terrible idea. These stocks are heavy weights in the index, and if they continue to do better than the rest of the market, their relative weight will increase. So, in the end, all you're doing is overweighting them a big more.

Thanks for the encouragement!

But why do that and then buy 2 individual stocks? Also you might want to look under the hood of those tech sector funds, many are heavily invested in just two stocks, AAPL & MSFT. And a lot of the others may be very highly valued (like CRM).

I have long-held positions in a number of individual stocks and working to rebalance. UNH, HUM, and MSFT have all performed extremely well and I am selling off shares to reach 5%, not buying.

[vanuber]

Thanks to all for some great responses! I am still encouraged to take a bit of risk on VGT. The dot com bubble was different as there was little actual value in the companies that busted. Even if some growth is priced in, a company like Microsoft is a great investment as they are adding real value to the economy. We've seen this realized during the pandemic with cloud computing and the ability to work remotely. I can always rebalance back into a total stock market fund as well.

[vanuber]

I think you should check the actual holdings of VGT. It's missing many 'potentially great' companies.
For instance, Tesla could be the winner of autonomous cars. That growth won't be in VGT.
Or wait... one of the main reason people are attracted to VGT might just not be there. Like... what if Amazon stock isn't actually in the holdings?

You make some good points. I really despise Amazon, so I am okay that they are not in VGT:) I think they are a good example of a company that is not offering much real value. They treat their employees poorly, they undercut their vendors, they make free 2-day shipping a consumer expectation that is impossible for small businesses to meet, and they qualify vendors passing fake/replica products as authentic. It's a great business model but the company is destroying the fabric of America and is much more of a threat than Wal-mart. End of rant.

[Elysium]

Even if some growth is priced in, a company like Microsoft is a great investment as they are adding real value to the economy.

Why was $1 invested in MSFT in the year 2000 at 0.60 cents at the end of 2009?

[ruud]

Why was $1 invested in MSFT in the year 2000 at 0.60 cents at the end of 2009?

Did MSFT really lose 99.4% of its value? Or did you mean $0.60 instead of less than a penny?

[vanuber]

Even if some growth is priced in, a company like Microsoft is a great investment as they are adding real value to the economy.

Why was $1 invested in MSFT in the year 2000 at 0.60 cents at the end of 2009?

The same reason $1.00 invested in the SP500 in the year 2000 was worth $0.59 in 2009?

[DoTheMath]

I am 40 years old, have about $445K invested and about $65K left on our mortgage. The problem is our household income is low <$40K, so I don't have a lot of new money to invest.

Well done! You are in a very good financial position for your age. You should remember to stop and congratulate yourself from time to time.

But with a lower income, I feel like I should take more risk to compensate beyond the index.

I want to push back on this a little. You are young, say you have a high-risk tolerance, and are in a good financial position, which are all reasonable reasons to consider more risk. You have the ability and willingness to take on more risk.

But having a lower income is not (to me) a compelling reason to take more risk. Especially because it makes it hard to dig yourself out if things go wrong. Risk doesn't necessarily mean more $$$ in the end. Risk isn't just about volatility, it's also about the chance of permanent loss. There are long lists of companies, especially in the tech sector, who have died with a whimper or a bang.

And especially with your already substantial portfolio, I'm not convinced you have the need to take greater risk.

[Elysium]

Even if some growth is priced in, a company like Microsoft is a great investment as they are adding real value to the economy.

Why was $1 invested in MSFT in the year 2000 at 0.60 cents at the end of 2009?

The same reason $1.00 invested in the SP500 in the year 2000 was worth $0.59 in 2009?

Your number is off, $1 in S&P 500 would be worth $0.90, while MSFT would be $0.60

So then what did you accomplish by overweighting Tech sector?

If you were chasing performance in 2009, you would have invested in REIT and SCV which were up several percentage points above Tech (QQQ/VGT) and S&P 500. Chasing Tech after it had a decade of good performance is unlikely to get your good results.

If you really feel you must do this, then I recommend a more broader index like VUG (LCG), that has a fairly larger share of Tech (33%), but also other sectors which makes it more balanced.

[vanuber]

It looks as if you are 100% stocks, how can you take on more risk?
At 40 and your current income level the recent market events should make you consider moving a portion of your portfolio to fixed income. At least you will have minimized some risk. You could still do what you are considering within the stock portion of your AA then.
Do you have an emergency fund?

Good point about risk. My finance and I are considering 5-10% bonds, but are okay with the risk of equities at this point. We have an emergency fund and actually have too much cash at the moment as we working to combine our finances (wedding is probably postponed until next year).

[vanuber]

I am 40 years old, have about $445K invested and about $65K left on our mortgage. The problem is our household income is low <$40K, so I don't have a lot of new money to invest.

Well done! You are in a very good financial position for your age. You should remember to stop and congratulate yourself from time to time.

But with a lower income, I feel like I should take more risk to compensate beyond the index.

I want to push back on this a little. You are young, say you have a high-risk tolerance, and are in a good financial position, which are all reasonable reasons to consider more risk. You have the ability and willingness to take on more risk.

But having a lower income is not (to me) a compelling reason to take more risk. Especially because it makes it hard to dig yourself out if things go wrong. Risk doesn't necessarily mean more $$$ in the end. Risk isn't just about volatility, it's also about the chance of permanent loss. There are long lists of companies, especially in the tech sector, who have died with a whimper or a bang.

And especially with your already substantial portfolio, I'm not convinced you have the need to take greater risk.

I really like this post. Good food for thought. I think lack of income is part of my dilemma, but even with conservative projections we are in a pretty good position.

[vanuber]

Chasing Tech after it had a decade of good performance is unlikely to get your good results.

I really don't like picking select time frames to make a point. However, this is a good one to consider ^. Thanks.

[Elysium]

Chasing Tech after it had a decade of good performance is unlikely to get your good results.

I really don't like picking select time frames to make a point. However, this is a good one to consider ^. Thanks.

I wanted to point out how cyclical sectors are, especially highly volatile ones like Tech that goes through boom & bust. I have worked in Tech since early 90's.

[whereskyle]

I am a JL Collins fan and have been mostly investing in VTSAX. However, I also own a lot of MSFT. This stock has done very well for me, but my position is too large and I am gradually selling shares and buying the index. Lately, I have been intrigued with VGT as tech has done very well over the past decade and I don't see this trend changing in the near future.

I realize there is more risk investing in a specific sector versus a total market index, but my risk tolerance is fairly high. I am 40 years old, have about $445K invested and about $65K left on our mortgage. The problem is our household income is low <$40K, so I don't have a lot of new money to invest. Seems like a lot of Bogelheads are high earners where more conservative strategies work well. But with a lower income, I feel like I should take more risk to compensate beyond the index.

I am considering the following equities position:

70% VTI/VTSAX
20% VGT
5% UNH
5% HUM

Who invests in funds outside of the index? Is a mixed fund strategy a good idea? Should I just stick with VTSAX? Any other funds I should consider?

(One consideration is the expense ratio – VGT .10% v/s VTI .03%)

I like VGT, but make sure you know what's in it (or not) and at which weights. No Google, Facebook, Netflix, or Amazon. Some of these companies were in VGT and then were moved out in 2018 due to a reformulation of the index, so don't think the performance you're looking at is based on the companies in VGT today. Here's what's in VGT today: https://investor.vanguard.com/etf/profi ... o-holdings

This link doesn't have weightings. If you have a brokerage account with Fidelity you can find weightings there. VGT is almost 40% Apple and Microsoft, both of which are well-positioned, cash-rich, still growing companies. You could do a lot worse with a top two in any given fund. The most incredible thing about VGT in my mind is how it has become almost a defensive ETF. In the recent downturn it has outperformed the market. That means, to me, that the fund does not run on speculation the way tech did in 1999. Much of the portfolio is invested in highly profitable, financially stable companies. The value of the companies are not based so much on potential future success as they are based on current (and expected future) success. The portfolio holds 320 companies or so, which is a lot for a sector ETF, but don't think that the risk is evenly spread throughout. I'm comfortable holding VGT because I'm very comfortable with each of the current holdings in the top 10. That said, by selling msft to move to VGT you wouldn't be diversifying that much. You would certainly have less risk, but it's hard to say that msft suffers from risks that are not shared across the tech sector. If I were in your position, I would seriously consider holding onto my msft, especially since you seem willing to take risk for higher gain. As far as we know, msft will outperform the tech sector. If msft seriously underperforms, chances are that so will VGT. Msft is a single position that has serious advantages: still robust growth outlook, plenty of $ on hand, and it pays growing dividends. Moving from Msft to VGT doesn't make a ton of sense to me. I was planning to buy some msft, but I already had VGT, so I just held onto it. Would VGT decrease your risk? Yes. Does it have the same upside as MSFT? I can't say. So, I guess it depends on your goals. But don't expect VGT to continue performing as it has, and remember that most of the time doing nothing is an investor's best option.

[1789]

You will be very sorry to bet on tech sector ETFs like QQQ/VGT and etc... Almost everyone who played with them (or individual tech stocks) in 90s regrets that they have done so. You can hear them in the forum.

[Pikel]

The Nasdaq 100 of today is a lot different than index of 20 years ago.

I'd say it is more like a modern day blue chip, with lower expected returns and lower expected risk. Also no exposure (aside from tendrils) to the financial industry.

[sharukh]

The kinds of risk you may possibly have to take are:
1. Get an extra college degree to improve earnings (you invest for college degree and May for kids extra care, note the choose of word invest as there is no guarantee of good returns with an extra college degree but the chances are high)

2. Look for ways to get a side hustle like fixer upper
3. May be an extra job like property management that you can do in spare time, no regular hours needed.
4. May be go down to one job in a family and ask he spouse to go to college
5. Share a roommate if single
6. Asking your boss for more responsibility and more money

Like those kinds of risks, not a market tilt risk.

Wishing you good luck

HTH

[vanuber]

The kinds of risk you may possibly have to take are:
1. Get an extra college degree to improve earnings (you invest for college degree and May for kids extra care, note the choose of word invest as there is no guarantee of good returns with an extra college degree but the chances are high)

2. Look for ways to get a side hustle like fixer upper
3. May be an extra job like property management that you can do in spare time, no regular hours needed.
4. May be go down to one job in a family and ask he spouse to go to college
5. Share a roommate if single
6. Asking your boss for more responsibility and more money

Like those kinds of risks, not a market tilt risk.

Wishing you good luck

HTH

Thanks for the ideas. That's been an interesting road. I have a bachelor's degree in industrial design. I worked for a consultancy and then GE appliances as a designer for 8 years then decided to get an architecture degree (and a divorce in the meantime). I have a master's in architecture and have been practicing for about 4 years. I have almost completed licensure. Once that is complete, I will be starting my own firm. Which should dramatically increase my earning potential.

My fiance owns a small business making herbal food and beverage products. The business is growing but she hasn't taken any significant pay in 4 years.

Long story short, I am done with higher education and waiting for the return. It's amazing how little architect's get paid with the amount of education, professional knowledge, and hours required. Fortunately, I was able to put away a lot during my years of more gainful employment!

[vanuber]

If I were in your position, I would seriously consider holding onto my msft, especially since you seem willing to take risk for higher gain. As far as we know, msft will outperform the tech sector. If msft seriously underperforms, chances are that so will VGT. Msft is a single position that has serious advantages: still robust growth outlook, plenty of $ on hand, and it pays growing dividends.

Thanks for your thoughtful reply. I have definitely considered this. Especially since I am paying a lot of capital gains taxes to rebalance everything. The short of it is 40% of my portfolio is currently in MSFT which is too risky. Hence, shifting some of that to VGT seems to makes sense for diversification. One thought is to just keep 20% in MSFT and put everything else in a total market fund?

[whereskyle]

If I were in your position, I would seriously consider holding onto my msft, especially since you seem willing to take risk for higher gain. As far as we know, msft will outperform the tech sector. If msft seriously underperforms, chances are that so will VGT. Msft is a single position that has serious advantages: still robust growth outlook, plenty of $ on hand, and it pays growing dividends.

Thanks for your thoughtful reply. I have definitely considered this. Especially since I am paying a lot of capital gains taxes to rebalance everything. The short of it is 40% of my portfolio is currently in MSFT which is too risky. Hence, shifting some of that to VGT seems to makes sense for diversification. One thought is to just keep 20% in MSFT and put everything else in a total market fund?

For retirement, I am 90% US total market and 10% total international. If you plan to use the $ for retirement and your time horizon is long, I say total market. If you are willing to bet on recent momentum continuing for nearer-term outperformance, I would suggest VUG (Vanguard Growth ETF) or QQQ as potentially better diversifiers than VGT because they hold less msft, are more evenly weighted, and they hold all the hot names that might have initially drawn you to VGT. In the end, and as I mentioned, I like VGT and I expect to hold onto it for a while, but as many people repeat on the forum, the market as a whole is already tech heavy, so the diversification and outperformance potential is doubtful. I would also add that the definitions of tech are always subject to change by those who manage the indices. If you hold individual positions, then the index managers can't change what you hold. If you hold sector etfs, then you're at the mercy of the index managers (see the 2018 reconstitution of VGT on what I would call extemely dubious grounds). I'll admit that I have what I call a medium-term growth/"quality" portfolio that is 50% VUG/VGT + 50% VDC (Consumer Staples ETF)/VIG (Dividend Appreciation ETF). (Note that most BHs do not entertain my idea that one can have separate portfolios for separate purposes. Note also that "quality" is an elusive/flawed concept regarding picking the best value stocks). If your goal is near-term outperformance and you're counting on momentum from the past few years continuing, then you could try a mix of VGT and VUG or QQQ. If all this $ is for retirement, I say just buy total market and keep some msft as you indicated.

I'll add that I hope my playing around with a few ETFs does not distract you. Total market is always the way to go. I'm just playing around with some funny money, as Jack would say, and I mention it only because you seem to have similar thinking by eyeing VGT.

[sharukh]

The kinds of risk you may possibly have to take are:
1. Get an extra college degree to improve earnings (you invest for college degree and May for kids extra care, note the choose of word invest as there is no guarantee of good returns with an extra college degree but the chances are high)

2. Look for ways to get a side hustle like fixer upper
3. May be an extra job like property management that you can do in spare time, no regular hours needed.
4. May be go down to one job in a family and ask he spouse to go to college
5. Share a roommate if single
6. Asking your boss for more responsibility and more money

Like those kinds of risks, not a market tilt risk.

Wishing you good luck

HTH

Thanks for the ideas. That's been an interesting road. I have a bachelor's degree in industrial design. I worked for a consultancy and then GE appliances as a designer for 8 years then decided to get an architecture degree (and a divorce in the meantime). I have a master's in architecture and have been practicing for about 4 years. I have almost completed licensure. Once that is complete, I will be starting my own firm. Which should dramatically increase my earning potential.

My fiance owns a small business making herbal food and beverage products. The business is growing but she hasn't taken any significant pay in 4 years.

Long story short, I am done with higher education and waiting for the return. It's amazing how little architect's get paid with the amount of education, professional knowledge, and hours required. Fortunately, I was able to put away a lot during my years of more gainful employment!

Thanks very much for sharing this.
Wishing you the very best.

[vanuber]

If you plan to use the $ for retirement and your time horizon is long, I say total market.

I'll add that I hope my playing around with a few ETFs does not distract you. Total market is always the way to go. I'm just playing around with some funny money, as Jack would say, and I mention it only because you seem to have similar thinking by eyeing VGT.

Thanks for clarifying your approach and the ETF recommendations.

It is a difficult choice as my portfolio of individual stocks (including a few losers) has greatly outperformed the index over the past 20 years. After tuning in to the Boglehead philosophy, I guess I have just been lucky? So even if I was 80% total market and 20% sector ETF that would feel conservative.

That said, I have a 25 year retirement target and I want to be a passive investor. So sounds like total market might be the way to go.

[whereskyle]

If you plan to use the $ for retirement and your time horizon is long, I say total market.

I'll add that I hope my playing around with a few ETFs does not distract you. Total market is always the way to go. I'm just playing around with some funny money, as Jack would say, and I mention it only because you seem to have similar thinking by eyeing VGT.

Thanks for clarifying your approach and the ETF recommendations.

It is a difficult choice as my portfolio of individual stocks (including a few losers) has greatly outperformed the index over the past 20 years. After tuning in to the Boglehead philosophy, I guess I have just been lucky? So even if I was 80% total market and 20% sector ETF that would feel conservative.

That said, I have a 25 year retirement target and I want to be a passive investor. So sounds like total market might be the way to go.

Hey, a lot of Bogle's recommendations, I think, apply with serious logical force to a well-diversified buy-and-hold portfolio. I have plenty of confidence that if I were to take the time to buy a portfolio of, say, 150 large-cap stocks according to industry weights reflective of the market, I could expect to match the performance of a large-cap index fund. Jack's central advice is buy as much as you can (preferably everything) and never sell, because that is the approach that carries the lowest costs and let's the market do the work for you. I don't know how broadly diversified you are, but the Dow has done pretty well and it's made up of 30 stocks! If you own a nice basket of individual stocks, I might just hold onto them and build out from there. Selling, I think, can do terrible things to investors: most detrimental of all, it risks making you question yourself, because there's always the chance the thing you sold will go on to perform wonderfully. I know that you want to use the "money" reflected in the price of the stocks you hold to diversify. If I were in your position, I would be careful and might consider just contributing to index funds from now on. I understand that you fear risk between now and whatever point in time you will be able to contribute more, but I firmly believe selling is the last thing an investor should ever do, especially if their risk is centered in microsoft.

[vanuber]

If you own a nice basket of individual stocks, I might just hold onto them and build out from there. Selling, I think, can do terrible things to investors: most detrimental of all, it risks making you question yourself, because there's always the chance the thing you sold will go on to perform wonderfully. I know that you want to use the "money" reflected in the price of the stocks you hold to diversify. If I were in your position, I would be careful and might consider just contributing to index funds from now on. I understand that you fear risk between now and whatever point in time you will be able to contribute more, but I firmly believe selling is the last thing an investor should ever do, especially if their risk is centered in microsoft.

You have aptly captured my struggle over the past 6 months. Just a little back story...

My holdings 11/2019:

- $50K IRA (VTSAX)
- $10.5K VTSAX investment account
- $380K Individual stocks, all held long-term with significant gains (MSFT $230K, HUM $54K, UNH $38K, CMCSA $21K, SGENX $16K, GLW $14.5K, EPC $4K, CSCO $4K, CTL $1K)
- $480 TOTAL

My holdings 4/2020:

- $65K VMFXX (money market holding account)
- $120K VTSAX ($70K in IRA)
- $9K AWSHX (employer sponsored SIMPLE IRA)
- $18K CMCSA Comcast
- $23K HUM Humana
- $196K MSFT Microsoft
- $34K UNH United Health Group
- $440K TOTAL - ($465K - $25K CGT's)

In rebalancing so far, I've sold $164K of individual stocks. It feels good to clean up my portfolio and own more total market. At the same time it will cost me $25K in CGT's. (These will come out of the money market fund). I would also most definitely be in a better position now had I not touched a thing. Who knows if I can say that in 25 years.

I like your idea of just holding what I have and buying VTSAX from here on out. It would certainly take some pressure off and I wouldn't be dealing with heavy capital gains. That said, a lot of Bogelheads think it folly to have more than 5% of your AA in one stock.

[dmcmahon]

I think you should check the actual holdings of VGT. It's missing many 'potentially great' companies.
For instance, Tesla could be the winner of autonomous cars. That growth won't be in VGT.
Or wait... one of the main reason people are attracted to VGT might just not be there. Like... what if Amazon stock isn't actually in the holdings?

You make some good points. I really despise Amazon, so I am okay that they are not in VGT:) I think they are a good example of a company that is not offering much real value. They treat their employees poorly, they undercut their vendors, they make free 2-day shipping a consumer expectation that is impossible for small businesses to meet, and they qualify vendors passing fake/replica products as authentic. It's a great business model but the company is destroying the fabric of America and is much more of a threat than Wal-mart. End of rant.

There's also VUG. Unlike VGT it contains many of the shares fwellimort talks about.

[whereskyle]

If you own a nice basket of individual stocks, I might just hold onto them and build out from there. Selling, I think, can do terrible things to investors: most detrimental of all, it risks making you question yourself, because there's always the chance the thing you sold will go on to perform wonderfully. I know that you want to use the "money" reflected in the price of the stocks you hold to diversify. If I were in your position, I would be careful and might consider just contributing to index funds from now on. I understand that you fear risk between now and whatever point in time you will be able to contribute more, but I firmly believe selling is the last thing an investor should ever do, especially if their risk is centered in microsoft.

You have aptly captured my struggle over the past 6 months. Just a little back story...

My holdings 11/2019:

- $50K IRA (VTSAX)
- $10.5K VTSAX investment account
- $380K Individual stocks, all held long-term with significant gains (MSFT $230K, HUM $54K, UNH $38K, CMCSA $21K, SGENX $16K, GLW $14.5K, EPC $4K, CSCO $4K, CTL $1K)
- $480 TOTAL

My holdings 4/2020:

- $65K VMFXX (money market holding account)
- $120K VTSAX ($70K in IRA)
- $9K AWSHX (employer sponsored SIMPLE IRA)
- $18K CMCSA Comcast
- $23K HUM Humana
- $196K MSFT Microsoft
- $34K UNH United Health Group
- $440K TOTAL - ($465K - $25K CGT's)

In rebalancing so far, I've sold $164K of individual stocks. It feels good to clean up my portfolio and own more total market. At the same time it will cost me $25K in CGT's. (These will come out of the money market fund). I would also most definitely be in a better position now had I not touched a thing. Who knows if I can say that in 25 years.

I like your idea of just holding what I have and buying VTSAX from here on out. It would certainly take some pressure off and I wouldn't be dealing with heavy capital gains. That said, a lot of Bogelheads think it folly to have more than 5% of your AA in one stock.

That last sentence is funny because the S&P 500 is guilty of the same! Both MSFT and Apple are currently weighted more than 5%, and I imagine the next index update will show the same for Amazon! I of course wouldn't hold just 6 or seven stocks, but you don't! You're well
on your way to building a properly diversified portfolio. You could sell a bit more MSFT, but I would laugh if someone told me msft wasn't going to return to its February peak eventually, so maybe sell it in a little while (if at all). I like rebalancing via new contributions. (Jack told me to hold forever!) Some people might freak out about owning msft but many BHs are fine with holding some Berkshire on the side because of retained earnings. Msft checks that box and then some.

[vanuber]

That last sentence is funny because the S&P 500 is guilty of the same! Both MSFT and Apple are currently weighted more than 5%, and I imagine the next index update will show the same for Amazon!

Good point!

I of course wouldn't hold just 6 or seven stocks, but you don't! You're well on your way to building a properly diversified portfolio. You could sell a bit more MSFT, but I would laugh if someone told me msft wasn't going to return to its February peak eventually, so maybe sell it in a little while (if at all). I like rebalancing via new contributions. (Jack told me to hold forever!) Some people might freak out about owning msft but many BHs are fine with holding some Berkshire on the side because of retained earnings. Msft checks that box and then some.

Thanks for the encouragement. It's easy to second guess yourself when moving large sums of money around. You've given me some good food for thought from the fringes of Bogle-osophy.

[vanuber]

There's also VUG. Unlike VGT it contains many of the shares fwellimort talks about.

That's a good one. Thanks.

[SeanFL]

Great job starting young and saving as much as possible!

About 15 years years ago, I simplified from multiple stocks and a dozen funds down to VTSAX and watched it grow. In the past year I've been moving a percentage of it over to VGT for some of the reasons others have identified above. It held up better than the overall market in the recent Covid-19 declines; I see the tech sector continuing to outperform for the next number of years. Many point back to 2000 and how horrible tech imploded during the dot com crash. Yet, today's tech high flyers have steady and often increasing profits. That was not the case in 2000.

Back in the 90's or 2000's I enjoyed a 5+ year ride with a heavy position in the Vanguard Health Care fund. If my memory serves well, it outperformed the overall market for many years but has not over the past 10+ years. VGT's above market performance will not last forever, but I've been enjoying it over the last year.

At your age, 25 to 50 percent exposure in VGT would be rather aggressive. It might pay off well in the next decade or not. You can rebalance into the broader market any time you feel like tech has lost it's edge.

This comparison chart with VTI & VGT may be helpful to some. Click the various time periods.
https://www.google.com/search?tbm=fin&s ... ab=COMPARE

[statefan03]

VGT is the most expensive of the core ETFs you can invest in right now in terms of book value and cash flows. Just FYI.

Code: Select all

Symbol	ETF Name				P/E	P/BV	P/CF
VFH	Vanguard Financials ETF			10.06	1.03	0
VXUS	Vanguard Total International Stock ETF	13.94	1.35	8
VDE	Vanguard Energy ETF			14.49	1.0	4.21
VIS	Vanguard Industrial ETF			16.27	3.1	9.76
VT	Vanguard Total World Stock ETF		16.67	1.92	10.17
VPU	Vanguard Utilities ETF			18.84	1.98	9.25
VTI	Vanguard Total Stock Market ETF		19.23	2.8	12.45
VAW	Vanguard Materials ETF			19.47	2.03	9.54
VOO	Vanguard S&P 500 ETF			19.68	3.02	13.02
VOX	Vanguard Communication Services ETF	20.71	2.79	9.74
VCR	Vanguard Consumer Discretionary ETF	21.5	4.25	12.82
VHT	Vanguard Healthcare ETF			23.13	4.05	15.84
VDC	Vanguard Consumer Staples ETF		23.91	4.33	14.34
VGT	Vanguard Information Technology ETF	25.79	6.69	16.87
VNQ	Vanguard Real Estate Index Fund		25.9	2.23	14.52

[statefan03]

Back in the 90's or 2000's I enjoyed a 5+ year ride with a heavy position in the Vanguard Health Care fund. If my memory serves well, it outperformed the overall market for many years but has not over the past 10+ years.

Healthcare has outperformed over the last 15 years, 10 years, and 5 years.
https://www.portfoliovisualizer.com/bac ... ion2_2=100

[LiveSimple]

Even if some growth is priced in, a company like Microsoft is a great investment as they are adding real value to the economy.

Why was $1 invested in MSFT in the year 2000 at 0.60 cents at the end of 2009?

The same reason $1.00 invested in the SP500 in the year 2000 was worth $0.59 in 2009?

this is a good perspective or at least fair comparison.

[1789]

Even if some growth is priced in, a company like Microsoft is a great investment as they are adding real value to the economy.

Why was $1 invested in MSFT in the year 2000 at 0.60 cents at the end of 2009?

The same reason $1.00 invested in the SP500 in the year 2000 was worth $0.59 in 2009?

this is a good perspective or at least fair comparison.

No it is not. If the returns are same why would you take significant risk to invest your 1$ in one company (msft) rather than 3600 companies?

[RomeoMustDie]

I am a JL Collins fan and have been mostly investing in VTSAX. However, I also own a lot of MSFT. This stock has done very well for me, but my position is too large and I am gradually selling shares and buying the index. Lately, I have been intrigued with VGT as tech has done very well over the past decade and I don't see this trend changing in the near future.

I realize there is more risk investing in a specific sector versus a total market index, but my risk tolerance is fairly high. I am 40 years old, have about $445K invested and about $65K left on our mortgage. The problem is our household income is low <$40K, so I don't have a lot of new money to invest. Seems like a lot of Bogelheads are high earners where more conservative strategies work well. But with a lower income, I feel like I should take more risk to compensate beyond the index.

I am considering the following equities position:

70% VTI/VTSAX
20% VGT
5% UNH
5% HUM

Who invests in funds outside of the index? Is a mixed fund strategy a good idea? Should I just stick with VTSAX? Any other funds I should consider?

(One consideration is the expense ratio – VGT .10% v/s VTI .03%)

Tech is not a great tilt because VTI is already heavily weighted towards the tech sector.

I like WCLD fund and also looked into ETF's that weight non large cap tech companies more.

Wouldn't deviate from IPS though, would just adjust AA if not fully invested into equities.

[LiveSimple]

No it is not. If the returns are same why would you take significant risk to invest your 1$ in one company (msft) rather than 3600 companies?

I agree with you, I was processing as VGT vs VTI, sector vs Total, so I said what I said.

Sure, not in an individual stock. Appreciate your note.