Slightly overweighting small-caps?

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whereskyle
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Slightly overweighting small-caps?

Post by whereskyle »

Hello all,

I am just wondering if anyone slightly overweights small caps. I am almost entirely a total-market indexer. Not big on factors really, and I am just wondering if anyone takes a total-market approach as the backbone of their portfolio and then adds a very small tilt towards small-caps at say 5 or 10%.

Thoughts or reading suggestions on the history/merits of such an approach would be welcome. Thanks, all!
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
theorist
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Re: Slightly overweighting small-caps?

Post by theorist »

There are a large number of people at the site who overweight small caps and especially small value — I slightly tilt this way myself, but there are people with much more dramatic tilts as well. (There are also adherents of more general factor based investing). One active thread about small and small value specifically is here:

viewtopic.php?f=10&t=282533&start=50

More generally if you google Fama-French factors or just small value on the site, you’ll find many hits.

The Russell 2000 has really taken it on the chin compared to large cap growth in recent years and months, so there is just now a bifurcation, with some saying “this time is different,” and others thinking a resurgence of small caps and small value is about to show up. For a nice article by proponents of the latter, see e.g.

https://www.osam.com/Commentary/a-histo ... -small-cap
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whereskyle
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Re: Slightly overweighting small-caps?

Post by whereskyle »

theorist wrote: Tue Apr 28, 2020 12:12 pm There are a large number of people at the site who overweight small caps and especially small value — I slightly tilt this way myself, but there are people with much more dramatic tilts as well. (There are also adherents of more general factor based investing). One active thread about small and small value specifically is here:

viewtopic.php?f=10&t=282533&start=50

More generally if you google Fama-French factors or just small value on the site, you’ll find many hits.

The Russell 2000 has really taken it on the chin compared to large cap growth in recent years and months, so there is just now a bifurcation, with some saying “this time is different,” and others thinking a resurgence of small caps and small value is about to show up. For a nice article by a proponent of the latter, see e.g.

https://www.osam.com/Commentary/a-histo ... -small-cap
I appreciate the response. Will read. For some reason, I am not very interested in doubling up on factors. My inclination is to add some small but not small-value. I don't think I have the stomach for an infamous SCV hibernation. Small-caps generally seem a bit more welcoming.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Slightly overweighting small-caps?

Post by theorist »

The article I linked is touting general small cap, so you might still like it! They are taking a strong pro position, but with data they claim supports such a position. Worth a glance.
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Re: Slightly overweighting small-caps?

Post by retired@50 »

whereskyle wrote: Tue Apr 28, 2020 11:32 am Hello all,

I am just wondering if anyone slightly overweights small caps. I am almost entirely a total-market indexer. Not big on factors really, and I am just wondering if anyone takes a total-market approach as the backbone of their portfolio and then adds a very small tilt towards small-caps at say 5 or 10%.

Thoughts or reading suggestions on the history/merits of such an approach would be welcome. Thanks, all!
Have you read any of William J. Bernstein's books? I enjoy his writing and have read most of what he's written. He often mentions value and small cap tilting for people willing to wander past the normal pasture of total market indexing.

Regards,
This is one person's opinion. Nothing more.
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Re: Slightly overweighting small-caps?

Post by whereskyle »

retired@50 wrote: Tue Apr 28, 2020 12:54 pm
whereskyle wrote: Tue Apr 28, 2020 11:32 am Hello all,

I am just wondering if anyone slightly overweights small caps. I am almost entirely a total-market indexer. Not big on factors really, and I am just wondering if anyone takes a total-market approach as the backbone of their portfolio and then adds a very small tilt towards small-caps at say 5 or 10%.

Thoughts or reading suggestions on the history/merits of such an approach would be welcome. Thanks, all!
Have you read any of William J. Bernstein's books? I enjoy his writing and have read most of what he's written. He often mentions value and small cap tilting for people willing to wander past the normal pasture of total market indexing.

Regards,
I have listened to his interview with Rick Ferri on the Bogleheads podcast and thoroughly enjoyed it. Where would you recommend I start among Bill's books?

I do not think I have the stomach to buy a factor fund although the small/value premium is the hardest to argue with. What I love about total-market indexing is having everything. I will most likely stick to it for that reason but I just wanted to get a sense if some people feel that total-market index investing is really just large-cap index investing and therefore that "tilt" (although I think we really can't call it that) should be offset. I doublechecked VTI and saw that it's almost 10% small and micro-caps. I might not see good cause for anything more than that, but I'm specifically wondering whether anyone tilts but only slightly.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
BigJohn
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Re: Slightly overweighting small-caps?

Post by BigJohn »

For me the issue with a small tilt is that it really doesn’t move the total portfolio return in a meaningful way even if it works as planned. If tracking error causes you to bail out of the tilt at the wrong time, it can be an real hurt far bigger than the theoretical help. Moving the total return needle in a meaningful way requires much larger tilts. This was one of the main reasons I choose not to tilt years ago. I wasn’t enough of a believer to go all in and valued simplicity enough to not want to just dabble.
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Re: Slightly overweighting small-caps?

Post by aristotelian »

The way I see it, any "tilt" big enough to make a noticeable difference in my returns is going to be too risky for me. Personally, Low Volatility is the more compelling tilt but that is probably just recency bias. Of course, that also underscores the problem, once you get into the business of overweighting this or that group of stocks, it is going to be very difficult to stick with it when you are underperforming.
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Re: Slightly overweighting small-caps?

Post by whereskyle »

BigJohn wrote: Tue Apr 28, 2020 1:40 pm For me the issue with a small tilt is that it really doesn’t move the total portfolio return in a meaningful way even if it works as planned. If tracking error causes you to bail out of the tilt at the wrong time, it can be an real hurt far bigger than the theoretical help. Moving the total return needle in a meaningful way requires much larger tilts. This was one of the main reasons I choose not to tilt years ago. I wasn’t enough of a believer to go all in and valued simplicity enough to not want to just dabble.
Thanks. I think the truth is I'm still in an early stage of my investing career where I'm constantly considering whether I need to add certain funds. But the more I think about it, the more I think I should stop thinking about it. I know I'm in a good position if I'm investing in low-cost, total-market index funds. Perhaps it is time to just leave well enough alone.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Slightly overweighting small-caps?

Post by whereskyle »

aristotelian wrote: Tue Apr 28, 2020 2:03 pm The way I see it, any "tilt" big enough to make a noticeable difference in my returns is going to be too risky for me. Personally, Low Volatility is the more compelling tilt but that is probably just recency bias. Of course, that also underscores the problem, once you get into the business of overweighting this or that group of stocks, it is going to be very difficult to stick with it when you are underperforming.
Thank you. I think I agree with your thinking. Playing around with funny money has done me some good and some harm. I've seen how anxiety inducing it is to have one thing to the exclusion of the other and to see the other performing well even on a short-term basis. I've also felt the unearned sense of gratification at seeing something go up after buying it. Might be time to take a few deep breaths and rediscover the contentment of being a total-market indexer and no more.
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Re: Slightly overweighting small-caps?

Post by retired@50 »

whereskyle wrote: Tue Apr 28, 2020 1:04 pm Where would you recommend I start among Bill's books?
These published dates seem old to me as I look at them, but I think they all hold up quite well.

The Four Pillars of Investing (2002)
The Investor's Manifesto (2009)
The Intelligent Asset Allocator (2000)

He's written others too, but these three were my favorites.

Regards,
This is one person's opinion. Nothing more.
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Re: Slightly overweighting small-caps?

Post by whereskyle »

retired@50 wrote: Tue Apr 28, 2020 2:12 pm
whereskyle wrote: Tue Apr 28, 2020 1:04 pm Where would you recommend I start among Bill's books?
These published dates seem old to me as I look at them, but I think they all hold up quite well.

The Four Pillars of Investing (2002)
The Investor's Manifesto (2009)
The Intelligent Asset Allocator (2000)

He's written others too, but these three were my favorites.

Regards,
Thank you! Looking forward to reading.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Slightly overweighting small-caps?

Post by randomguy »

whereskyle wrote: Tue Apr 28, 2020 11:32 am Hello all,

I am just wondering if anyone slightly overweights small caps. I am almost entirely a total-market indexer. Not big on factors really, and I am just wondering if anyone takes a total-market approach as the backbone of their portfolio and then adds a very small tilt towards small-caps at say 5 or 10%.

Thoughts or reading suggestions on the history/merits of such an approach would be welcome. Thanks, all!
I am not sure if you are talking 5% of stocks or 5% of the portfolio but in general small tilts don't do much. 5% of the portfolio making an extra 3% just doesn't change anything.
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Re: Slightly overweighting small-caps?

Post by whereskyle »

randomguy wrote: Tue Apr 28, 2020 2:27 pm
whereskyle wrote: Tue Apr 28, 2020 11:32 am Hello all,

I am just wondering if anyone slightly overweights small caps. I am almost entirely a total-market indexer. Not big on factors really, and I am just wondering if anyone takes a total-market approach as the backbone of their portfolio and then adds a very small tilt towards small-caps at say 5 or 10%.

Thoughts or reading suggestions on the history/merits of such an approach would be welcome. Thanks, all!
I am not sure if you are talking 5% of stocks or 5% of the portfolio but in general small tilts don't do much. 5% of the portfolio making an extra 3% just doesn't change anything.
I was thinking something along the lines of 60% VTSAX (tIRA)
+ Russell 3000 (401k), 30% VT (Roth), 10% VB (Roth).

I currently don't hold bonds (31 years old and not much wealth to protect). I can't decide on an international allocation so I've decided to set VT at 30% to let the global market tell me how much ex-US to hold. (If U.S. were to take up, say, 75% of global market cap, I'd probably buy some ex-us specific fund). Because of my preference for VT to help with my ex-us indecision, I was worried that small caps would be neglected as a result, so I thought I might pad them a bit. If it just won't make much of a difference, then I will scrap the idea. The fewer funds the merrier!

Thanks for your input and for any thoughts on this AA I've sketched.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Slightly overweighting small-caps?

Post by whereskyle »

theorist wrote: Tue Apr 28, 2020 12:12 pm There are a large number of people at the site who overweight small caps and especially small value — I slightly tilt this way myself, but there are people with much more dramatic tilts as well. (There are also adherents of more general factor based investing). One active thread about small and small value specifically is here:

viewtopic.php?f=10&t=282533&start=50

More generally if you google Fama-French factors or just small value on the site, you’ll find many hits.

The Russell 2000 has really taken it on the chin compared to large cap growth in recent years and months, so there is just now a bifurcation, with some saying “this time is different,” and others thinking a resurgence of small caps and small value is about to show up. For a nice article by proponents of the latter, see e.g.

https://www.osam.com/Commentary/a-histo ... -small-cap
Thanks again for your thoughts on this. I was wondering if you would be willing to share how much you tilt towards scv and with which other holdings in your portfolio. Right now my retirement is primarily VTSAX. I have been building a position in VT (because I cannot settle on a precise ex-us allocation, and I love the simplicity of the all-in-one fund). I could see myself holding 60% VTSAX, 30% VT, and 10% VB for retirement.

Do you think 10% VB makes any sense or is such an allocation so trivial I should just scrap it for simplicity's sake?

Thanks for any input.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Slightly overweighting small-caps?

Post by mushyyy »

Any small tilt won’t change the performance of the total portfolio.

If SCV is 10% of the portfolio and it outperform the stock by 10% a year, your overall portfolio will outperform only 1%.

If you want to capture the benefits, SCV has to be a significant part or the portfolio
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Re: Slightly overweighting small-caps?

Post by whereskyle »

mushyyy wrote: Fri May 01, 2020 9:07 am Any small tilt won’t change the performance of the total portfolio.

If SCV is 10% of the portfolio and it outperform the stock by 10% a year, your overall portfolio will outperform only 1%.

If you want to capture the benefits, SCV has to be a significant part or the portfolio
Thank you for explaining the math on that. From what I've seen of those who do tilt towards SCV, it seems that a rough minimum is 20%. Would you agree?

Also, please note I have been suggesting tilting towards small (VB is actually a mid/small fund) but not small-value. I know this is not nearly as popular as tilting towards SCV. In sum, I'm willing to take small additional risk, but I fear behavioral missteps if SCV were to underperform for long periods. Based on VB's performance over the past 15 years, it seems the risk of its underperformance is lower. If value does well, VB will capture some of it. If growth does well, the same. I think I could stick with VB at 10%. I don't know about 20%.

I will keep reading Bernstein and other small/value commentators and see if I can take the plunge to 20% on VB. Will take some time to decide. As for the value factor, like so many newer to the game I find it hard to rely on 1990s research touting its advantage when history since casts doubt on it.
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Re: Slightly overweighting small-caps?

Post by reln »

whereskyle wrote: Tue Apr 28, 2020 11:32 am Hello all,

I am just wondering if anyone slightly overweights small caps. I am almost entirely a total-market indexer. Not big on factors really, and I am just wondering if anyone takes a total-market approach as the backbone of their portfolio and then adds a very small tilt towards small-caps at say 5 or 10%.

Thoughts or reading suggestions on the history/merits of such an approach would be welcome. Thanks, all!
So long as you're consistently and at a low cost excluding the small growth stocks with low profitablility, you will have a higher expected return.
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Re: Slightly overweighting small-caps?

Post by nisiprius »

Even with a small allocation, be aware that it doesn't make much sense unless you are seriously prepared to hang in there with it for decades. The paper that drew the investment world's attention to small-cap outperformance was published in 1981, and shortly thereafter Dimensional Fund Advisors (DFA) brought out their first fund, now known as the DFA US Micro Cap Fund. Factor mavens seem to regard DFA as the connoisseurs' choice. Now, remember, I'm just talking about raw return; small-caps carry higher risk and we should really look at risk-adjusted return, but I will just show raw return.

Comparing the DFA US Micro Cap Fund (DFSCX, blue) to the Vanguard 500 Index Fund (orange), this is what would have been experienced by investors who put $10,000 into each fund at the inception of DFSCX:

Source

Image

The small-cap investor had more money than the S&P 500 fund for four years. He then fell behind for seventeen years. He then caught up and was ahead for sixteen years, and then fell behind again, and currently--over the total life of DFSCX since inception, thirty-eight years including several business cycles and several bull and bear markets--it is, overall, behind.

So if you are convinced there is a benefit to holding a small-cap tilt, you must be prepared to stay the course and hang onto it for periods of underperformance as long as seventeen years. Are you really prepared to do that?
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Re: Slightly overweighting small-caps?

Post by whereskyle »

nisiprius wrote: Fri May 01, 2020 9:59 am Even with a small allocation, be aware that it doesn't make much sense unless you are seriously prepared to hang in there with it for decades. The paper that drew the investment world's attention to small-cap outperformance was published in 1981, and shortly thereafter Dimensional Fund Advisors (DFA) brought out their first fund, now known as the DFA US Micro Cap Fund. Factor mavens seem to regard DFA as the connoisseurs' choice. Now, remember, I'm just talking about raw return; small-caps carry higher risk and we should really look at risk-adjusted return, but I will just show raw return.

Comparing the DFA US Micro Cap Fund (DFSCX, blue) to the Vanguard 500 Index Fund (orange), this is what would have been experienced by investors who put $10,000 into each fund at the inception of DFSCX:

Source

Image

The small-cap investor had more money than the S&P 500 fund for four years. He then fell behind for seventeen years. He then caught up and was ahead for sixteen years, and then fell behind again, and currently--over the total life of DFSCX since inception, thirty-eight years including several business cycles and several bull and bear markets--it is, overall, behind.

So if you are convinced there is a benefit to holding a small-cap tilt, you must be prepared to stay the course and hang onto it for periods of underperformance as long as seventeen years. Are you really prepared to do that?
Thanks for spelling this out, Nisiprius. As I've said, I'm willing to take slight additional risk. That leads me to gravitate to an extremely low cost small/midcap blend fund in VB. I think microcaps and SCV are too risky for me. I'm not willing to take that much risk to earn the higher reward. VB seems to present a less risky alternative.

Do you have any thought as to whether an allocation as low as 10% to a more vanilla fund such as VB to complement an all-equities portfolio consisting of 60% VTSAX and 30% VT would simply be a waste of time?
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Re: Slightly overweighting small-cap

Post by theorist »

whereskyle wrote: Fri May 01, 2020 9:00 am
theorist wrote: Tue Apr 28, 2020 12:12 pm There are a large number of people at the site who overweight small caps and especially small value — I slightly tilt this way myself, but there are people with much more dramatic tilts as well. (There are also adherents of more general factor based investing). One active thread about small and small value specifically is here:

viewtopic.php?f=10&t=282533&start=50

More generally if you google Fama-French factors or just small value on the site, you’ll find many hits.

The Russell 2000 has really taken it on the chin compared to large cap growth in recent years and months, so there is just now a bifurcation, with some saying “this time is different,” and others thinking a resurgence of small caps and small value is about to show up. For a nice article by proponents of the latter, see e.g.

https://www.osam.com/Commentary/a-histo ... -small-cap
Thanks again for your thoughts on this. I was wondering if you would be willing to share how much you tilt towards scv and with which other holdings in your portfolio. Right now my retirement is primarily VTSAX. I have been building a position in VT (because I cannot settle on a precise ex-us allocation, and I love the simplicity of the all-in-one fund). I could see myself holding 60% VTSAX, 30% VT, and 10% VB for retirement.

Do you think 10% VB makes any sense or is such an allocation so trivial I should just scrap it for simplicity's sake?

Thanks for any input.
My tilt is through holdings of VSIAX and VSMAX (both the small cap value and the small cap blend indices). The US small caps constitute about 20% of my stock holdings in that portfolio.

Capturing ~1% outperformance over many years would certainly be worthwhile in my opinion, though who knows if there will be outperformance or underperformance. Run some numbers before deciding that a 1% kick over many years (with compounding) wouldn’t matter :-).

I think factor mavens would tell you IJR is likely a better bet than VB, due to its overall greater degree of smallness. (The Vanguard funds tend to hold a larger number of midcaps; quantitatively, VB has an average market cap of $3.4 billion while IJR has an average market cap of $1.2 billion.)

Good luck!
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Re: Slightly overweighting small-cap

Post by whereskyle »

theorist wrote: Fri May 01, 2020 12:39 pm
whereskyle wrote: Fri May 01, 2020 9:00 am
theorist wrote: Tue Apr 28, 2020 12:12 pm There are a large number of people at the site who overweight small caps and especially small value — I slightly tilt this way myself, but there are people with much more dramatic tilts as well. (There are also adherents of more general factor based investing). One active thread about small and small value specifically is here:

viewtopic.php?f=10&t=282533&start=50

More generally if you google Fama-French factors or just small value on the site, you’ll find many hits.

The Russell 2000 has really taken it on the chin compared to large cap growth in recent years and months, so there is just now a bifurcation, with some saying “this time is different,” and others thinking a resurgence of small caps and small value is about to show up. For a nice article by proponents of the latter, see e.g.

https://www.osam.com/Commentary/a-histo ... -small-cap
Thanks again for your thoughts on this. I was wondering if you would be willing to share how much you tilt towards scv and with which other holdings in your portfolio. Right now my retirement is primarily VTSAX. I have been building a position in VT (because I cannot settle on a precise ex-us allocation, and I love the simplicity of the all-in-one fund). I could see myself holding 60% VTSAX, 30% VT, and 10% VB for retirement.

Do you think 10% VB makes any sense or is such an allocation so trivial I should just scrap it for simplicity's sake?

Thanks for any input.
My tilt is through holdings of VSIAX and VSMAX (both the small cap value and the small cap blend indices). The US small caps constitute about 20% of my stock holdings in that portfolio.

Capturing ~1% outperformance over many years would certainly be worthwhile in my opinion, though who knows if there will be outperformance or underperformance. Run some numbers before deciding that a 1% kick over many years (with compounding) wouldn’t matter :-).

I think factor mavens would tell you IJR is likely a better bet than VB, due to its overall greater degree of smallness. (The Vanguard funds tend to hold a larger number of midcaps; quantitatively, VB has an average market cap of $3.4 billion while IJR has an average market cap of $1.2 billion.)

Good luck!
Thank you, Theorist. I appreciate your pointing out IJR, which I've looked into as well. I've noted the middle-ness of VB, and I think it squares nicely with my limited willingness to take much risk apart from market risk. Thanks again.
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Re: Slightly overweighting small-caps?

Post by Sandtrap »

Tilting, swaying, leaning, does not proportionally “move the needle” as much as a simple allocation change?

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Re: Slightly overweighting small-caps?

Post by Average Investor »

I set up a modest 5% of portfolio tilt to SCV in taxable when I first started managing my portfolio. If I had to do it again I would just choose a 3-fund portfolio for simplicity.
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Re: Slightly overweighting small-caps?

Post by whereskyle »

Average Investor wrote: Fri May 01, 2020 1:31 pm I set up a modest 5% of portfolio tilt to SCV in taxable when I first started managing my portfolio. If I had to do it again I would just choose a 3-fund portfolio for simplicity.
Thank you for the input.
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Re: Slightly overweighting small-caps?

Post by whereskyle »

Sandtrap wrote: Fri May 01, 2020 1:12 pm Tilting, swaying, leaning, does not proportionally “move the needle” as much as a simple allocation change?

j🌺
Great point. Perhaps I'm just exploring all the ways a 100% equities investor can fiddle with an already ideal market portfolio. As long as I keep up my contributions to VTSAX, I shouldn't do too much harm. :beer
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Re: Slightly overweighting small-caps?

Post by MotoTrojan »

whereskyle wrote: Fri May 01, 2020 2:29 pm
Sandtrap wrote: Fri May 01, 2020 1:12 pm Tilting, swaying, leaning, does not proportionally “move the needle” as much as a simple allocation change?

j🌺
Great point. Perhaps I'm just exploring all the ways a 100% equities investor can fiddle with an already ideal market portfolio. As long as I keep up my contributions to VTSAX, I shouldn't do too much harm. :beer
No VTIAX? Maybe instead of tilting your VTSAX with a small dose of small-caps, you could add some international exposure via something like VFSVX/VSS (I prefer small-value leaning funds like FNDC which is my entire ex-US allocation at 30%, but you stated you prefer just small). An 85/15 VTSAX/VFSVX would have higher expected return and be far more diversified than 100% VTSAX IMHO.

<10% of anything isn't enough to move the needle IMHO. My smallest holding is 20% (US small-value).
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Re: Slightly overweighting small-caps?

Post by whereskyle »

MotoTrojan wrote: Fri May 01, 2020 2:42 pm
whereskyle wrote: Fri May 01, 2020 2:29 pm
Sandtrap wrote: Fri May 01, 2020 1:12 pm Tilting, swaying, leaning, does not proportionally “move the needle” as much as a simple allocation change?

j🌺
Great point. Perhaps I'm just exploring all the ways a 100% equities investor can fiddle with an already ideal market portfolio. As long as I keep up my contributions to VTSAX, I shouldn't do too much harm. :beer
No VTIAX? Maybe instead of tilting your VTSAX with a small dose of small-caps, you could add some international exposure via something like VFSVX/VSS (I prefer small-value leaning funds like FNDC which is my entire ex-US allocation at 30%, but you stated you prefer just small). An 85/15 VTSAX/VFSVX would have higher expected return and be far more diversified than 100% VTSAX IMHO.

<10% of anything isn't enough to move the needle IMHO. My smallest holding is 20% (US small-value).
I'm trying to take the pain out of settling on an ex-us allocation and have more or less decided to hold VTSAX and VT in roughly equal amounts as my core equity holdings. Building the position in VT steadily. Would consider VSS in addition to VB. If I were to do so, you would recommend 10% in each I presume? I could see: 50VTSAX/30VT/10VB/10VSS.
Last edited by whereskyle on Fri May 01, 2020 4:16 pm, edited 1 time in total.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
stocknoob4111
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Re: Slightly overweighting small-caps?

Post by stocknoob4111 »

I have a major tilt... 25% of my portfolio is Small Blend (S&P 600 - VTMSX). Yes, it has been decimated but i'm sticking to the plan.

I don't see it any different from 25% International, infact since 01/2018 VTMSX has performed better than VTIAX and yet people freely hold 25, 35 or even 45% of International in their portfolios.

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MotoTrojan
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Re: Slightly overweighting small-caps?

Post by MotoTrojan »

whereskyle wrote: Fri May 01, 2020 4:05 pm
MotoTrojan wrote: Fri May 01, 2020 2:42 pm
whereskyle wrote: Fri May 01, 2020 2:29 pm
Sandtrap wrote: Fri May 01, 2020 1:12 pm Tilting, swaying, leaning, does not proportionally “move the needle” as much as a simple allocation change?

j🌺
Great point. Perhaps I'm just exploring all the ways a 100% equities investor can fiddle with an already ideal market portfolio. As long as I keep up my contributions to VTSAX, I shouldn't do too much harm. :beer
No VTIAX? Maybe instead of tilting your VTSAX with a small dose of small-caps, you could add some international exposure via something like VFSVX/VSS (I prefer small-value leaning funds like FNDC which is my entire ex-US allocation at 30%, but you stated you prefer just small). An 85/15 VTSAX/VFSVX would have higher expected return and be far more diversified than 100% VTSAX IMHO.

<10% of anything isn't enough to move the needle IMHO. My smallest holding is 20% (US small-value).
I'm trying to take the pain out of settling on an ex-us allocation and have more or less decided to hold VTSAX and VT in roughly equal amounts as my core equity holdings. Building the position in VT steadily. Would consider VSS in addition to VB. If I were to do so, you would recommend 10% in each I presume? I could see: 50VTSAX/30VT/10VB/10VSS.
That AA seems reasonable to me if you want to avoid value and get a modest size tilt. VIOO would be a deeper size tilt than VB (VB is more 50/50 small/mid) and is well worth the 0.1% ER for the exposure IMHO.

I would've gone with separate VXUS over VT but we've discussed that before and your AA is fine.
Topic Author
whereskyle
Posts: 1258
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Re: Slightly overweighting small-caps?

Post by whereskyle »

MotoTrojan wrote: Fri May 01, 2020 4:21 pm
whereskyle wrote: Fri May 01, 2020 4:05 pm
MotoTrojan wrote: Fri May 01, 2020 2:42 pm
whereskyle wrote: Fri May 01, 2020 2:29 pm
Sandtrap wrote: Fri May 01, 2020 1:12 pm Tilting, swaying, leaning, does not proportionally “move the needle” as much as a simple allocation change?

j🌺
Great point. Perhaps I'm just exploring all the ways a 100% equities investor can fiddle with an already ideal market portfolio. As long as I keep up my contributions to VTSAX, I shouldn't do too much harm. :beer
No VTIAX? Maybe instead of tilting your VTSAX with a small dose of small-caps, you could add some international exposure via something like VFSVX/VSS (I prefer small-value leaning funds like FNDC which is my entire ex-US allocation at 30%, but you stated you prefer just small). An 85/15 VTSAX/VFSVX would have higher expected return and be far more diversified than 100% VTSAX IMHO.

<10% of anything isn't enough to move the needle IMHO. My smallest holding is 20% (US small-value).
I'm trying to take the pain out of settling on an ex-us allocation and have more or less decided to hold VTSAX and VT in roughly equal amounts as my core equity holdings. Building the position in VT steadily. Would consider VSS in addition to VB. If I were to do so, you would recommend 10% in each I presume? I could see: 50VTSAX/30VT/10VB/10VSS.
That AA seems reasonable to me if you want to avoid value and get a modest size tilt. VIOO would be a deeper size tilt than VB (VB is more 50/50 small/mid) and is well worth the 0.1% ER for the exposure IMHO.

I would've gone with separate VXUS over VT but we've discussed that before and your AA is fine.
Thanks MotoTrojan for the input. I'm assuming you target small/value in US and ex-us equities, and I'm wondering if you weight your ex-us small-value position more than your US small-value position. If so, could you tell me why?
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
MotoTrojan
Posts: 10652
Joined: Wed Feb 01, 2017 8:39 pm

Re: Slightly overweighting small-caps?

Post by MotoTrojan »

whereskyle wrote: Fri May 01, 2020 5:46 pm
MotoTrojan wrote: Fri May 01, 2020 4:21 pm
whereskyle wrote: Fri May 01, 2020 4:05 pm
MotoTrojan wrote: Fri May 01, 2020 2:42 pm
whereskyle wrote: Fri May 01, 2020 2:29 pm

Great point. Perhaps I'm just exploring all the ways a 100% equities investor can fiddle with an already ideal market portfolio. As long as I keep up my contributions to VTSAX, I shouldn't do too much harm. :beer
No VTIAX? Maybe instead of tilting your VTSAX with a small dose of small-caps, you could add some international exposure via something like VFSVX/VSS (I prefer small-value leaning funds like FNDC which is my entire ex-US allocation at 30%, but you stated you prefer just small). An 85/15 VTSAX/VFSVX would have higher expected return and be far more diversified than 100% VTSAX IMHO.

<10% of anything isn't enough to move the needle IMHO. My smallest holding is 20% (US small-value).
I'm trying to take the pain out of settling on an ex-us allocation and have more or less decided to hold VTSAX and VT in roughly equal amounts as my core equity holdings. Building the position in VT steadily. Would consider VSS in addition to VB. If I were to do so, you would recommend 10% in each I presume? I could see: 50VTSAX/30VT/10VB/10VSS.
That AA seems reasonable to me if you want to avoid value and get a modest size tilt. VIOO would be a deeper size tilt than VB (VB is more 50/50 small/mid) and is well worth the 0.1% ER for the exposure IMHO.

I would've gone with separate VXUS over VT but we've discussed that before and your AA is fine.
Thanks MotoTrojan for the input. I'm assuming you target small/value in US and ex-us equities, and I'm wondering if you weight your ex-us small-value position more than your US small-value position. If so, could you tell me why?
Sure thing. Here’s my AA summary:

50% US large/total mild value tilt. 401k is in VTSAX, rest in FNDX for a value tilt. Currently majority (65%) is VTSAX though.

20% US small value. 401k in VSIAX with majority in SLYV/AVUV elsewhere.

30% ex-US small-value. 401k has a dose of VTIAX to help rebalance but majority is in FNDC.
Topic Author
whereskyle
Posts: 1258
Joined: Wed Jan 29, 2020 10:29 am

Re: Slightly overweighting small-caps?

Post by whereskyle »

MotoTrojan wrote: Fri May 01, 2020 5:54 pm
whereskyle wrote: Fri May 01, 2020 5:46 pm
MotoTrojan wrote: Fri May 01, 2020 4:21 pm
whereskyle wrote: Fri May 01, 2020 4:05 pm
MotoTrojan wrote: Fri May 01, 2020 2:42 pm

No VTIAX? Maybe instead of tilting your VTSAX with a small dose of small-caps, you could add some international exposure via something like VFSVX/VSS (I prefer small-value leaning funds like FNDC which is my entire ex-US allocation at 30%, but you stated you prefer just small). An 85/15 VTSAX/VFSVX would have higher expected return and be far more diversified than 100% VTSAX IMHO.

<10% of anything isn't enough to move the needle IMHO. My smallest holding is 20% (US small-value).
I'm trying to take the pain out of settling on an ex-us allocation and have more or less decided to hold VTSAX and VT in roughly equal amounts as my core equity holdings. Building the position in VT steadily. Would consider VSS in addition to VB. If I were to do so, you would recommend 10% in each I presume? I could see: 50VTSAX/30VT/10VB/10VSS.
That AA seems reasonable to me if you want to avoid value and get a modest size tilt. VIOO would be a deeper size tilt than VB (VB is more 50/50 small/mid) and is well worth the 0.1% ER for the exposure IMHO.

I would've gone with separate VXUS over VT but we've discussed that before and your AA is fine.
Thanks MotoTrojan for the input. I'm assuming you target small/value in US and ex-us equities, and I'm wondering if you weight your ex-us small-value position more than your US small-value position. If so, could you tell me why?
Sure thing. Here’s my AA summary:

50% US large/total mild value tilt. 401k is in VTSAX, rest in FNDX for a value tilt. Currently majority (65%) is VTSAX though.

20% US small value. 401k in VSIAX with majority in SLYV/AVUV elsewhere.

30% ex-US small-value. 401k has a dose of VTIAX to help rebalance but majority is in FNDC.
Thanks for sharing. Any line of thought in particular that inspired the add'l ex-us scv tilt?
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
MotoTrojan
Posts: 10652
Joined: Wed Feb 01, 2017 8:39 pm

Re: Slightly overweighting small-caps?

Post by MotoTrojan »

whereskyle wrote: Fri May 01, 2020 5:58 pm
MotoTrojan wrote: Fri May 01, 2020 5:54 pm
whereskyle wrote: Fri May 01, 2020 5:46 pm
MotoTrojan wrote: Fri May 01, 2020 4:21 pm
whereskyle wrote: Fri May 01, 2020 4:05 pm

I'm trying to take the pain out of settling on an ex-us allocation and have more or less decided to hold VTSAX and VT in roughly equal amounts as my core equity holdings. Building the position in VT steadily. Would consider VSS in addition to VB. If I were to do so, you would recommend 10% in each I presume? I could see: 50VTSAX/30VT/10VB/10VSS.
That AA seems reasonable to me if you want to avoid value and get a modest size tilt. VIOO would be a deeper size tilt than VB (VB is more 50/50 small/mid) and is well worth the 0.1% ER for the exposure IMHO.

I would've gone with separate VXUS over VT but we've discussed that before and your AA is fine.
Thanks MotoTrojan for the input. I'm assuming you target small/value in US and ex-us equities, and I'm wondering if you weight your ex-us small-value position more than your US small-value position. If so, could you tell me why?
Sure thing. Here’s my AA summary:

50% US large/total mild value tilt. 401k is in VTSAX, rest in FNDX for a value tilt. Currently majority (65%) is VTSAX though.

20% US small value. 401k in VSIAX with majority in SLYV/AVUV elsewhere.

30% ex-US small-value. 401k has a dose of VTIAX to help rebalance but majority is in FNDC.
Thanks for sharing. Any line of thought in particular that inspired the add'l ex-us scv tilt?
More diversification (global large caps are more correlated) and my ex-US exposure overall is underweight so a more modest tilt’s holding would’ve been too low to justify the complexity. I also feel like foreign small caps would have more mispricing than US, so the fundamental index approach should work even better abroad.

Just feels right though, and far more diversified than the 100% S&P500 crowd. I’m getting my large-cap/beta exposure in the US for the lowest cost, and combining my foreign with other factors.
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