Trying to match total market in 401k

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teddytimtam
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Trying to match total market in 401k

Post by teddytimtam » Sat Aug 01, 2020 2:42 am

Trying to approximate the total stock market with the funds provided in my 401k. The wiki page offers data from 2018, so don't know if its still valid.

Goal: VTSAX

Funds:
Vanguard Institutional Index VIIIX
Vanguard Mid-Cap Index VMCPX
Vanguard Small Cap Index VSCPX

I was playing with portfoliovisualizer to see what would yield the same result. Seems like 100% VIIIX (SP500) does.

1) What % would you recommend from each fund?
2) Is it okay to only use 2/3 of the funds? (ex: large/mid or large/small)
3) Is anybody investing 100% in SP500 instead of Total Market?

Outer Marker
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Re: Trying to match total market in 401k

Post by Outer Marker » Sat Aug 01, 2020 3:53 am

Using just the S&P 500 is fine for simplicity. If you put it up vs. TSM on a chart you practically need a magnifying glass to see any difference. That's what I'd do.

If you want the exact recipe, it would be:

81% Vanguard 500 Index Fund (VFIAX)
4% Vanguard Mid-Cap Index Fund (VIMAX)
15% Vanguard Small-Cap Index Fund (VSMAX)

https://www.bogleheads.org/wiki/Approxi ... ock_market

Triple digit golfer
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Re: Trying to match total market in 401k

Post by Triple digit golfer » Sat Aug 01, 2020 3:57 am

I would and do use only the 500 index as my "total stock market" and don't bother with small or mid cap funds.

If you wanted to, according to the Bogleheads wiki, 81/4/15 or 82/0/18 should get you EXTREMELY close. The percentages fluctuate slightly all the time, so just pick one and stick to it. I prefer 100% S&P 500. Is easier and fewer funds to manage.

Here's what the three look like going as far back as I could using the oldest share classes of each fund available, while assuming steady regular annual contributions:

https://www.portfoliovisualizer.com/bac ... tion3_3=18

lakpr
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Re: Trying to match total market in 401k

Post by lakpr » Sat Aug 01, 2020 5:01 am

Do you want to own companies like Tesla and Zoom? S&P 500 index does not include these. I would take the extra effort to go 80:5:15 to replicate the total market. Note that the mid cap index fund is the one owning these companies, hence the suggestion to go 80:5:15 rather than 82:0:18

Topic Author
teddytimtam
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Re: Trying to match total market in 401k

Post by teddytimtam » Sat Aug 01, 2020 5:32 am

Ran 3 cases from Jan 2011 to Jul 2020 and these are the results.

Portfolio 1 = 100% SP500 (large)
Portfolio 2 = 80/5/15 (large/mid/small)
Portfolio 3 = 80/20 (large/small)

Portfolio Initial Final CAGR
Portfolio 1 $10,000 $31,720 12.80%
Portfolio 2 $10,000 $30,273 12.25%
Portfolio 3 $10,000 $30,122 12.19%
VTSAX $10,000 $30,675 12.41%

The delta dollar figure seems marginal, but the reality is the difference between a 100% SP500 vs. 80/5/15 portfolio is a significant 5%. This might be swaying me to choose 100% in SP500, but only in my 401k. I will continue to use VTSAX in Roth/Brokerages.

Savermom
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Re: Trying to match total market in 401k

Post by Savermom » Sat Aug 01, 2020 8:25 am

Yes, I do the s and p in 401k and TSM in other accounts.

Triple digit golfer
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Re: Trying to match total market in 401k

Post by Triple digit golfer » Sat Aug 01, 2020 9:48 am

Savermom wrote:
Sat Aug 01, 2020 8:25 am
Yes, I do the s and p in 401k and TSM in other accounts.

Same.

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anon_investor
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Re: Trying to match total market in 401k

Post by anon_investor » Sat Aug 01, 2020 9:59 am

teddytimtam wrote:
Sat Aug 01, 2020 5:32 am
Ran 3 cases from Jan 2011 to Jul 2020 and these are the results.

Portfolio 1 = 100% SP500 (large)
Portfolio 2 = 80/5/15 (large/mid/small)
Portfolio 3 = 80/20 (large/small)

Portfolio Initial Final CAGR
Portfolio 1 $10,000 $31,720 12.80%
Portfolio 2 $10,000 $30,273 12.25%
Portfolio 3 $10,000 $30,122 12.19%
VTSAX $10,000 $30,675 12.41%

The delta dollar figure seems marginal, but the reality is the difference between a 100% SP500 vs. 80/5/15 portfolio is a significant 5%. This might be swaying me to choose 100% in SP500, but only in my 401k. I will continue to use VTSAX in Roth/Brokerages.
Unless your 401k has some kind of auto re-balancing feature (or very easy one), I would recommend 100% S&P500 instead of trying to replicate the total stock market. S&P500 is good enough, and simplicity has its benefits.

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ruralavalon
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Re: Trying to match total market in 401k

Post by ruralavalon » Sat Aug 01, 2020 10:05 am

In my opinion Vanguard Institutional Index (VIIIX), a S&P 500 index fund, is good enough by itself for investing in U.S. stocks. A S&P 500 index fund covers over 80% of the U.S. stock market investing in selected stocks of large-cap and mid-cap U.S. companies. In the 28 years since the creation of the first total stock market index fund the two types of of funds have had almost identical performance. Portfolio Visualizer, 1993-2020.

If you want to add some small-cap, then an 82/18 mix of S&P 500 and small-cap index funds will mimic from content of a total stock market index fund. Wiki article, "Approximating Total Stock Market" . In my opinion this is not necessary, it is optional if you prefer to do this.
Last edited by ruralavalon on Sat Aug 01, 2020 10:11 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Outer Marker
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Re: Trying to match total market in 401k

Post by Outer Marker » Sat Aug 01, 2020 10:09 am

Triple digit golfer wrote:
Sat Aug 01, 2020 9:48 am
Savermom wrote:
Sat Aug 01, 2020 8:25 am
Yes, I do the s and p in 401k and TSM in other accounts.
Same.
+1 This is what I do as well.

Topic Author
teddytimtam
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Re: Trying to match total market in 401k

Post by teddytimtam » Mon Aug 03, 2020 6:44 am

Seems like the simplicity of having 100% SP is the popular choice.

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vineviz
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Re: Trying to match total market in 401k

Post by vineviz » Mon Aug 03, 2020 6:56 am

teddytimtam wrote:
Mon Aug 03, 2020 6:44 am
Seems like the simplicity of having 100% SP is the popular choice.
Performance chasing is always popular.

I’d suggest taking advantage of diversification by putting 20% in either the small or mid cap fund.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Triple digit golfer
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Re: Trying to match total market in 401k

Post by Triple digit golfer » Mon Aug 03, 2020 7:10 am

vineviz wrote:
Mon Aug 03, 2020 6:56 am
teddytimtam wrote:
Mon Aug 03, 2020 6:44 am
Seems like the simplicity of having 100% SP is the popular choice.
Performance chasing is always popular.

I’d suggest taking advantage of diversification by putting 20% in either the small or mid cap fund.
It's got nothing to do with performance chasing. The small and mid cap funds are just 18% of the market and are highly correlated with it. Ther S&P 500 and total market have and always will be highly correlated and perform similarly to one another.

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vineviz
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Re: Trying to match total market in 401k

Post by vineviz » Mon Aug 03, 2020 7:51 am

Triple digit golfer wrote:
Mon Aug 03, 2020 7:10 am
vineviz wrote:
Mon Aug 03, 2020 6:56 am
teddytimtam wrote:
Mon Aug 03, 2020 6:44 am
Seems like the simplicity of having 100% SP is the popular choice.
Performance chasing is always popular.

I’d suggest taking advantage of diversification by putting 20% in either the small or mid cap fund.
It's got nothing to do with performance chasing. The small and mid cap funds are just 18% of the market and are highly correlated with it. Ther S&P 500 and total market have and always will be highly correlated and perform similarly to one another.
Including 20% in small or midcap stocks is good practice, because they improve diversification.

Image
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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ruralavalon
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Re: Trying to match total market in 401k

Post by ruralavalon » Mon Aug 03, 2020 10:15 am

I prefer a total stock market index fund where available, in fact use Vanguard Total Stock Market Index Fund (VTSAX) in my rollover IRA, my Roth IRA, and our joint taxable account.

However this 401k, like many others, lacks a total stock market index fund, but offers a S&P 500 index fund. Over the 28 years since the creation of the first total stock market index fund the two types of fund have had almost identical performance. The differences have been immaterial. Portfolio Visualizer, 1993-2020.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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