Small cap lagging large cap in portfolio

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Gorlow
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Small cap lagging large cap in portfolio

Post by Gorlow »

I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
Dave55
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Re: Small cap lagging large cap in portfolio

Post by Dave55 »

What was your plan when you designed this allocation? Did you consider that one or the other would underperform?

Dave
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Gorlow
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Re: Small cap lagging large cap in portfolio

Post by Gorlow »

My only plan was to be somewhat diversified and they both seemed like good funds.
Dave55
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Re: Small cap lagging large cap in portfolio

Post by Dave55 »

Investing in stocks of any kind is a long term proposition, meaning decades. One month is meaningless. Check back in 10 or 20 years to see how your allocation is doing.

Dave
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arcticpineapplecorp.
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Re: Small cap lagging large cap in portfolio

Post by arcticpineapplecorp. »

Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
you probably should just stop slicing and dicing.

first do you have a rebalancing schedule? Like are you looking at the end of the quarter or some other time? Do you have rebalancing bands? If you don't have a defined rebalancing plan, this is why you're struggling. Not saying the thing that you buy that's cheaper now won't go down after you buy it, but:

a. if it does, you may have to buy even more if the rebalancing band has been breached yet again.
b. have you never bought something (stocks or bonds) and then they went down after you bought them? (i.e., it happens sometimes. You can't predict it and you can't prevent it. So you stick to a mechanical approach of rebalancing).

second if you just own an all in one fund like a target date or total market, you don't have to worry about these things because the rebalancing is done automatically for you.

third, perhaps your tilt to small cap is too extreme? Instead of doing 50% small cap, maybe you should do 20%?

fourth, looks like large cap went up 4.5% and small cap went down -3.3% the past quarter (source: https://testfol.io/?d=eJytj01PwzAMhv%2B ... 1xegdSNon5). Would you feel the same way if small cap went up 4.5% over the past quarter and large cap went down -3.3% the past quarter? I.E., would you not want to rebalance out of small cap and into large cap?
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livesoft
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Re: Small cap lagging large cap in portfolio

Post by livesoft »

I think you should switch to Total US Stock Market Index funds if you can do so without tax cost.

Otherwise, you should not rebalance into small cap, but only buy more small cap when it has a so-called RBD (really bad day).

So with new periodic investing, you have a choice to add to small-cap or not. My advice is definitely NOT. Instead just add to Total Stock Market.
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Re: Small cap lagging large cap in portfolio

Post by Whakamole »

Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
Why are you comparing returns of separate asset classes at all?
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Re: Small cap lagging large cap in portfolio

Post by tibbitts »

Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
If you rebalance you'll be moving gains from large cap to small cap; I don't see how that's accepting a loss?
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arcticpineapplecorp.
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Re: Small cap lagging large cap in portfolio

Post by arcticpineapplecorp. »

tibbitts wrote: Tue Jul 02, 2024 7:38 pm
Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
If you rebalance you'll be moving gains from large cap to small cap; I don't see how that's accepting a loss?
s/he's worried about a future loss after s/he rebalances. It's called market timing what the OP is trying to do ("I won't rebalance now because I'm afraid the thing I've rebalanced into will go down after that!"...then you know what happens sometimes...you missed your opportunity to buy low because while you were on the sidelines the thing that you thought was going to down went up instead :oops: )
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arcticpineapplecorp.
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Re: Small cap lagging large cap in portfolio

Post by arcticpineapplecorp. »

Gorlow wrote: Tue Jul 02, 2024 6:47 pm My only plan was to be somewhat diversified and they both seemed like good funds.
do you think if something goes down that doesn't make it a good fund?

do you think funds are only supposed to go up but never down?

would you say the total stock market index fund is not a good fund because it went down -24.44% in 2022 (source: https://testfol.io/?d=eJxdT8FqwzAM%2FRe ... C5fCYaM%3D)

or -47.41% in 2008 (source: https://testfol.io/?d=eJxdT8FKxEAM%2FZe ... FZZ0YaE%3D)?
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Topic Author
Gorlow
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Re: Small cap lagging large cap in portfolio

Post by Gorlow »

arcticpineapplecorp. wrote: Tue Jul 02, 2024 7:54 pm
tibbitts wrote: Tue Jul 02, 2024 7:38 pm
Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
If you rebalance you'll be moving gains from large cap to small cap; I don't see how that's accepting a loss?
s/he's worried about a future loss after s/he rebalances. It's called market timing what the OP is trying to do ("I won't rebalance now because I'm afraid the thing I've rebalanced into will go down after that!"...then you know what happens sometimes...you missed your opportunity to buy low because while you were on the sidelines the thing that you thought was going to down went up instead :oops: )
No, I’m worried about present loss because what I’m considering doing is selling the majority of my small cap and putting it into large cap out of fear that the small won’t ever catch up. I appreciate all the insight so far and you all have made some good points.
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Re: Small cap lagging large cap in portfolio

Post by the_wiki »

You can’t catch up by selling low and buying high.
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Gorlow
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Re: Small cap lagging large cap in portfolio

Post by Gorlow »

I may have been hasty in making it a 50/50 split but at the time both seemed like they had a good upward trajectory. I want to dial it back now to 80 large 20 small. I just wonder if I should hold out to make that change or if I should accept that loss. I know a couple months of underperformance isn’t the end of the world, but to see half my money floundering while the broader market soars is not a great feeling.
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Re: Small cap lagging large cap in portfolio

Post by ApeAttack »

Gorlow wrote: Tue Jul 02, 2024 9:00 pm
arcticpineapplecorp. wrote: Tue Jul 02, 2024 7:54 pm
tibbitts wrote: Tue Jul 02, 2024 7:38 pm
Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
If you rebalance you'll be moving gains from large cap to small cap; I don't see how that's accepting a loss?
s/he's worried about a future loss after s/he rebalances. It's called market timing what the OP is trying to do ("I won't rebalance now because I'm afraid the thing I've rebalanced into will go down after that!"...then you know what happens sometimes...you missed your opportunity to buy low because while you were on the sidelines the thing that you thought was going to down went up instead :oops: )
No, I’m worried about present loss because what I’m considering doing is selling the majority of my small cap and putting it into large cap out of fear that the small won’t ever catch up. I appreciate all the insight so far and you all have made some good points.
If you do that, and small cap outperforms large cap over the next year by a sizeable amount, what will you do then?

Focus on creating a strategy that you can stick with through thick and thin. Performance chasing is not a great strategy long term.
Last edited by ApeAttack on Tue Jul 02, 2024 9:18 pm, edited 1 time in total.
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Re: Small cap lagging large cap in portfolio

Post by Grt2bOutdoors »

Rip off the bandaid and reallocate to your preferred asset allocation. But having said that, don’t change your asset allocation each time you get a sinking feeling. Buying the Total Stock Market index ensures you are participating in all sectors of the domestic equities markets.
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Re: Small cap lagging large cap in portfolio

Post by rkhusky »

Gorlow wrote: Tue Jul 02, 2024 9:14 pm I may have been hasty in making it a 50/50 split but at the time both seemed like they had a good upward trajectory. I want to dial it back now to 80 large 20 small. I just wonder if I should hold out to make that change or if I should accept that loss. I know a couple months of underperformance isn’t the end of the world, but to see half my money floundering while the broader market soars is not a great feeling.
80/20 is about the breakdown of Total Stock Market. If you have a TSM fund in your 401k, sell your two funds and buy that.

If your 401k was all cash, in what would you invest? If it’s not what you currently have, sell what you have and turn it into cash, and then buy what you really want.

There’s a cognitive bias called Anchoring which can cause people to make unwise financial decisions.
Last edited by rkhusky on Tue Jul 02, 2024 9:43 pm, edited 2 times in total.
coachd50
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Re: Small cap lagging large cap in portfolio

Post by coachd50 »

Gorlow wrote: Tue Jul 02, 2024 9:00 pm
arcticpineapplecorp. wrote: Tue Jul 02, 2024 7:54 pm
tibbitts wrote: Tue Jul 02, 2024 7:38 pm
Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
If you rebalance you'll be moving gains from large cap to small cap; I don't see how that's accepting a loss?
s/he's worried about a future loss after s/he rebalances. It's called market timing what the OP is trying to do ("I won't rebalance now because I'm afraid the thing I've rebalanced into will go down after that!"...then you know what happens sometimes...you missed your opportunity to buy low because while you were on the sidelines the thing that you thought was going to down went up instead :oops: )
No, I’m worried about present loss because what I’m considering doing is selling the majority of my small cap and putting it into large cap out of fear that the small won’t ever catch up. I appreciate all the insight so far and you all have made some good points.
OP- just to avoid confusion in the future- ( like articpineapplecorp’s response to you) what you described is not called “rebalancing”. It is just changing your allocation. In fact it is the direct opposite of rebalancing which is an action taken to maintain the predetermined allocation

Rebalancing would be if you wanted 50% large 50 % small and due to the performance of the two funds, large cap made up 65% of your balance and small cap 35%. You would sell large cap and buy small in the amount that would make the % 50-50 again.

You just want to change your investment selection
Last edited by coachd50 on Tue Jul 02, 2024 11:38 pm, edited 3 times in total.
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id0ntkn0wjack
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Re: Small cap lagging large cap in portfolio

Post by id0ntkn0wjack »

What lead you to invest in small cap in the first place? Large caps have more than doubled the returns of small caps over the past decade.

Now, a contrarian might say that large caps are over valued and now is the perfect time for a SCV tilt.

Who knows? One day the contrarian might be right.
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Re: Small cap lagging large cap in portfolio

Post by mhadden1 »

livesoft wrote: Tue Jul 02, 2024 7:02 pm I think you should switch to Total US Stock Market Index funds if you can do so without tax cost.
+1
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02nz
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Re: Small cap lagging large cap in portfolio

Post by 02nz »

Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
So let's say the reverse happens a year from now. Won't you still be fretting? One will always be outperforming the other, you don't know ahead of time which. So maybe you should just invest in a total stock market fund.
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Re: Small cap lagging large cap in portfolio

Post by ginrummy »

You may get a more useful response if you pose the question as those of you who have been in my situation, those of you who have ripped the band-aid off at some point, how did it feel to adjust your allocation? At what point, how many years, were you able to look back and say, yes, that was a good move.

I’m sure alot of people on this forum have ripped the band-aid off at one time or another. Some of their experiences may resonate with you.
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Re: Small cap lagging large cap in portfolio

Post by gavinsiu »

One reoccurring problem I see is that the investor see the portfolio as separate component rather than the whole portfolio so they are eternally unhappy because one part of their portfolio is always underperforming. They also can't make themselves to buy the losing asset to rebalance.

They also don't understand how one asset might underperform for a long time. In the case of small cap, it might take 20 years. I feel that they might be happier with either just a total market fund where they will alway be 1 to 1 against the benchmark (which will typically be the total stock market or S&P 500) or just buy an all-in-one fund.
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Re: Small cap lagging large cap in portfolio

Post by JakeyLee »

mhadden1 wrote: Tue Jul 02, 2024 9:42 pm
livesoft wrote: Tue Jul 02, 2024 7:02 pm I think you should switch to Total US Stock Market Index funds if you can do so without tax cost.
+1
Total stock market index is a fantastic choice for folks believing/wanting/needing diversification in the small cap space. I’ve recommended it to many colleagues and friends over the years ago that had such an itch. At the end of the day, they’d be in the same place with a good ol’ fashioned S&P 500 fund. I don’t tell em that. But yeah. Good times :beer
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Re: Small cap lagging large cap in portfolio

Post by Wannaretireearly »

Where’s the Callan table when we need it ;)
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Re: Small cap lagging large cap in portfolio

Post by White Coat Investor »

Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
If quarterly returns make you nervous about losses it suggests your asset allocation is too aggressive. Dial it back until your fear of missing out is approximately equal to your fear of loss.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Re: Small cap lagging large cap in portfolio

Post by the_wiki »

Gorlow wrote: Tue Jul 02, 2024 9:14 pm I may have been hasty in making it a 50/50 split but at the time both seemed like they had a good upward trajectory. I want to dial it back now to 80 large 20 small. I just wonder if I should hold out to make that change or if I should accept that loss. I know a couple months of underperformance isn’t the end of the world, but to see half my money floundering while the broader market soars is not a great feeling.
I'm not going to tell you what to do, or that small caps or large caps are superior. .

But one quarter means absolutely nothing for your investing lifetime, or honestly even for annual returns. If one stock outperformed by 10% one quarter, it could just easily underperform by the same the next quarter.

If you flip your portfolio around every few months based on what did better, you will drastically underperform the market.

I suggest you check out this short article and video about Recency Bias.

https://www.schwabassetmanagement.com/c ... cency-bias
JustGotScammed
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Re: Small cap lagging large cap in portfolio

Post by JustGotScammed »

gavinsiu wrote: Tue Jul 02, 2024 10:14 pm One reoccurring problem I see is that the investor see the portfolio as separate component rather than the whole portfolio so they are eternally unhappy because one part of their portfolio is always underperforming. They also can't make themselves to buy the losing asset to rebalance.

They also don't understand how one asset might underperform for a long time. In the case of small cap, it might take 20 years. I feel that they might be happier with either just a total market fund where they will alway be 1 to 1 against the benchmark (which will typically be the total stock market or S&P 500) or just buy an all-in-one fund.
Possibly the most useful comment in the history of the Bogleheads site.
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Re: Small cap lagging large cap in portfolio

Post by Chuckles960 »

Gorlow wrote: Tue Jul 02, 2024 9:14 pm I may have been hasty in making it a 50/50 split but at the time both seemed like they had a good upward trajectory. I want to dial it back now to 80 large 20 small. I just wonder if I should hold out to make that change or if I should accept that loss.
Just to repeat what others have said:

(a) switching to 80/20 now would be "buy high, sell low".
(b) whether you "accept" last quarter's performance is irrelevant. It is a done deal.

The way market prediction works is this: If certain stocks perform poorly, it is interpreted to mean they will (i) go up (cyclic market theory) or (ii) go down even more (momentum theory). You apparently believe in (ii), but in fact past performance says nothing about the future.
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Re: Small cap lagging large cap in portfolio

Post by muffins14 »

Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
What do you mean by “accept a loss”?

It seems like you’ve gained a lot in large cap, and if anything you are “locking in those gains” by selling some and buying the small cap to rebalance
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Re: Small cap lagging large cap in portfolio

Post by monkeytoad »

OP, just want to stress the point (that basically everyone else made) - that consistency is the key. Everyone has their own tolerance of what they can handle. I tilt SCV to 10%, because that doesn't move the needle too much when it underperforms (and, conversely, it will never smash the market with overperformance). Where your tolerance is, only you know. If it's at 0 for SCV (which is fine), just go total market. If it's at 20%, that's fine too. The main thing is not to make this a recurring occurrence, and keep changing what the allocation is.
Just trying to stay the course
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Re: Small cap lagging large cap in portfolio

Post by arcticpineapplecorp. »

Wannaretireearly wrote: Tue Jul 02, 2024 10:30 pm Where’s the Callan table when we need it ;)
right here at the wiki:

https://www.bogleheads.org/wiki/File:Ca ... eturns.png
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Re: Small cap lagging large cap in portfolio

Post by Money_Badger »

Gorlow wrote: Tue Jul 02, 2024 9:14 pm I may have been hasty in making it a 50/50 split but at the time both seemed like they had a good upward trajectory. I want to dial it back now to 80 large 20 small. I just wonder if I should hold out to make that change or if I should accept that loss. I know a couple months of underperformance isn’t the end of the world, but to see half my money floundering while the broader market soars is not a great feeling.
Why not just put all future investments in large cap? Then you will slowly tilt more and more to large cap ...
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arcticpineapplecorp.
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Re: Small cap lagging large cap in portfolio

Post by arcticpineapplecorp. »

Gorlow wrote: Tue Jul 02, 2024 9:00 pm
arcticpineapplecorp. wrote: Tue Jul 02, 2024 7:54 pm
tibbitts wrote: Tue Jul 02, 2024 7:38 pm
Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
If you rebalance you'll be moving gains from large cap to small cap; I don't see how that's accepting a loss?
s/he's worried about a future loss after s/he rebalances. It's called market timing what the OP is trying to do ("I won't rebalance now because I'm afraid the thing I've rebalanced into will go down after that!"...then you know what happens sometimes...you missed your opportunity to buy low because while you were on the sidelines the thing that you thought was going to down went up instead :oops: )
No, I’m worried about present loss because what I’m considering doing is selling the majority of my small cap and putting it into large cap out of fear that the small won’t ever catch up. I appreciate all the insight so far and you all have made some good points.
ah, well that's different from your original post, but now I see you changed it to better clarify your position.

as I and others have said, this is probably the reason you should stop slicing and dicing altogether and just own the total market. It includes small cap, and yet, at the same time you won't have to look at the individual pieces' performance that make up the total market. As was said if you slice and dice you still have to rebalance and if large underperforms small going forward are you going to want to rebalance into what has recently underperformed?

it's possible small might not ever catch up but i doubt that. There are long periods where a thing does one thing until it doesn't. Been true since the start of the market. You still have to be prepared for long periods of underperformance. See small cap value's performance. It had very long periods of underperformance relative to the S&P500:

Image

But over this entire period small cap value beat large cap growth. It's just the outperformance of small cap value comes in small short bursts. You can't see it there but those small bursts more than made up for the long periods of prior underperformance. You gotta ask yourself, "Am I a patient person or not?" If you're looking at quarterly performance that tells us the answer.

But large has also had long periods of underperformance. Go look at the U.S.'s "lost decade" as one example.

Just because something hasn't done well doesn't mean it was a bad investment. You should want to buy the things that have underperformed because buying stocks that cost less has often led to higher returns than buying stocks that cost more. Having a diversified portfolio means always having to say you're sorry. If you don't have a diversified portfolio that means everything can all go down together all at once. You want that?
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Re: Small cap lagging large cap in portfolio

Post by bikechuck »

Gorlow wrote: Tue Jul 02, 2024 9:14 pm I may have been hasty in making it a 50/50 split but at the time both seemed like they had a good upward trajectory. I want to dial it back now to 80 large 20 small. I just wonder if I should hold out to make that change or if I should accept that loss. I know a couple months of underperformance isn’t the end of the world, but to see half my money floundering while the broader market soars is not a great feeling.
Are you still working and building your portfolio? If so, and you wish to have proportionately less small cap, you could gradually do so by purchasing large cap only going forward. Then IF it's performance continues to lag it will become a smaller proportion of your portfolio.

If you are retired and decumulating you could gradually change your allocation by withdrawing from small cap only. Then, IF it's performance continues to lag it will become a smaller proportion of your portfolio.

I am a fan of smaller gradual changes.
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Re: Small cap lagging large cap in portfolio

Post by tibbitts »

bikechuck wrote: Wed Jul 03, 2024 8:14 am
Gorlow wrote: Tue Jul 02, 2024 9:14 pm I may have been hasty in making it a 50/50 split but at the time both seemed like they had a good upward trajectory. I want to dial it back now to 80 large 20 small. I just wonder if I should hold out to make that change or if I should accept that loss. I know a couple months of underperformance isn’t the end of the world, but to see half my money floundering while the broader market soars is not a great feeling.
Are you still working and building your portfolio? If so, and you wish to have proportionately less small cap, you could gradually do so by purchasing large cap only going forward. Then IF it's performance continues to lag it will become a smaller proportion of your portfolio.

If you are retired and decumulating you could gradually change your allocation by withdrawing from small cap only. Then, IF it's performance continues to lag it will become a smaller proportion of your portfolio.

I am a fan of smaller gradual changes.
I would say now that I'm decumulating that it's difficult to withdraw from an asset that's down. I'd rather withdraw from one that's up. But yes, gradual changes are better. Any time I've done anything significant it's almost always been at what's turned out to be the worst possible time.
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Re: Small cap lagging large cap in portfolio

Post by coachd50 »

muffins14 wrote: Wed Jul 03, 2024 4:12 am
Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
What do you mean by “accept a loss”?

It seems like you’ve gained a lot in large cap, and if anything you are “locking in those gains” by selling some and buying the small cap to rebalance
The OP is incorrectly using the term "rebalance" (incorrect with respect to the definition most here use) which is causing some posters to misinterpret his question and plan.

OP states later in the thread that what they want to do is actually change their desired allocation, and hold more large cap and less small cap because large cap is performing better.

It isn't terribly common, but I have seen several posts on this board using the term "rebalance" to describe any buying or selling in a portfolio, as opposed to the more commonly understood use which describes a very specific buying and selling strategy.
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Re: Small cap lagging large cap in portfolio

Post by dogagility »

ApeAttack wrote: Tue Jul 02, 2024 9:15 pm Focus on creating a strategy that you can stick with through thick and thin. Performance chasing is not a great strategy long term.
As others have mentioned too, the statement above is the answer, OP.

With your original 50:50 asset allocation, you made a large bet that small cap would outperform large cap. You didn't think of this as a long-term (multi-decade) strategy when you made this decision... but that's how you need to think of your equity asset allocation. If you don't view your investment as long term, then you will continue to performance chase returns and ultimately reduce your returns.

Find an asset allocation that you can hold long term, implement that allocation, and (above all) stay the course. :beer
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Re: Small cap lagging large cap in portfolio

Post by coachd50 »

dogagility wrote: Wed Jul 03, 2024 9:44 am

Find an asset allocation that you can hold long term, implement that allocation, and (above all) stay the course. :beer
I think these sentiments are presented on this board extremely frequently, but the discussion of what it entails is so much less frequent or developed. Often the entire discussion around this topic is simply someone posting a table with drawdowns based on 2008 performance. I have rarely run across well developed discussions diving deeper into allocation decisions and portfolio construction- which has resulted in the numerous "never again bond funds" and frustration by members at the recent performance (or lack of) in their portfolios.
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Re: Small cap lagging large cap in portfolio

Post by goblue100 »

the_wiki wrote: Tue Jul 02, 2024 9:07 pm You can’t catch up by selling low and buying high.
Exactly this. If you started 80% large cap and 20% small cap, for example, and now it is 85% large cap and 15% small cap, you should sell 5% large to buy small. Then at least you are selling high to presumably buy low. If you can't manage to find the discipline to do this then you should strongly consider an all in one fund.
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Re: Small cap lagging large cap in portfolio

Post by ruralavalon »

Gorlow wrote: Tue Jul 02, 2024 6:42 pm I am 50% invested in large cap and 50% small cap for my 401(k). The crazy difference in return the last quarter has me nervous and wanting to rebalance my portfolio. I don’t want to rebalance now and accept a loss but I’m worried it will get worse. What should I do?
Gorlow wrote: Tue Jul 02, 2024 6:47 pm My only plan was to be somewhat diversified and they both seemed like good funds.
If this is in a tax-advantaged account like a 401k or IRA, then just switch it all to a total stock market index fund , or target date fund or other balanced fund for simplicity and better diversification.

What type of account is this in?
Last edited by ruralavalon on Wed Jul 03, 2024 9:56 am, edited 1 time in total.
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Re: Small cap lagging large cap in portfolio

Post by rule of law guy »

I have posted before how large cap should beat out small cap as technology becomes a greater driver of returns. especially with AI penetration, which will occur early for large cap. later (and less) for small cap.

I am almost entirely allocated to SPY for my equity allocation in part for this reason.

if I am right about technology adoption being an important differentiator going forward, long time historical charts such as posted by arctic would be less informative relative to future expectations.
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Re: Small cap lagging large cap in portfolio

Post by rockstar »

This is behavioral.

Why did you buy that allocation in the first place?
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Re: Small cap lagging large cap in portfolio

Post by dogagility »

coachd50 wrote: Wed Jul 03, 2024 9:50 am
dogagility wrote: Wed Jul 03, 2024 9:44 am Find an asset allocation that you can hold long term, implement that allocation, and (above all) stay the course. :beer
I think these sentiments are presented on this board extremely frequently, but the discussion of what it entails is so much less frequent or developed. Often the entire discussion around this topic is simply someone posting a table with drawdowns based on 2008 performance. I have rarely run across well developed discussions diving deeper into allocation decisions and portfolio construction- which has resulted in the numerous "never again bond funds" and frustration by members at the recent performance (or lack of) in their portfolios.
There has been forum discussion ad nauseam on selecting an equity allocation among small cap, small cap value, SP500, total US stock, total international stock, etc.

The OP needs to make a decision him/herself, so the OP can stay the course with confidence. There is no correct answer other than choosing an allocation and sticking with it.

(I will recommend the OP invest in two funds: 70% total US stock and 30% total International stock)
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Re: Small cap lagging large cap in portfolio

Post by livesoft »

Today July 3, 2024, US large-cap is lagging small-cap AND international and bonds. What is going on!!??
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Re: Small cap lagging large cap in portfolio

Post by rockstar »

livesoft wrote: Wed Jul 03, 2024 10:00 am Today July 3, 2024, US large-cap is lagging small-cap AND international and bonds. What is going on!!??
Buffett. Didn’t he say to buy the S&P 500 over the course of one’s career?
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Re: Small cap lagging large cap in portfolio

Post by coachd50 »

dogagility wrote: Wed Jul 03, 2024 9:59 am
coachd50 wrote: Wed Jul 03, 2024 9:50 am
dogagility wrote: Wed Jul 03, 2024 9:44 am Find an asset allocation that you can hold long term, implement that allocation, and (above all) stay the course. :beer
I think these sentiments are presented on this board extremely frequently, but the discussion of what it entails is so much less frequent or developed. Often the entire discussion around this topic is simply someone posting a table with drawdowns based on 2008 performance. I have rarely run across well developed discussions diving deeper into allocation decisions and portfolio construction- which has resulted in the numerous "never again bond funds" and frustration by members at the recent performance (or lack of) in their portfolios.
There has been forum discussion ad nauseam on selecting an equity allocation among small cap, small cap value, SP500, total US stock, total international stock, etc.

I disagree with this assertion. There has been much discussion about the numbers involved (70/30 65/35 etc). Those get thrown around all the time. But in the threads I have read there isn't much discussion deeper than that. 60/40 is "more conservative" than 80/20. But rarely do I see much of a deep dive than that- because everything is based off of a simple 3 fund - Total US, Total international Total bond etc, which has resulted in many saying "hey, what the heck..my "safe" assets have declined and the corresponding response being " You should have known what you were investing in"
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Re: Small cap lagging large cap in portfolio

Post by ApeAttack »

coachd50 wrote: Wed Jul 03, 2024 10:07 am
dogagility wrote: Wed Jul 03, 2024 9:59 am
coachd50 wrote: Wed Jul 03, 2024 9:50 am
dogagility wrote: Wed Jul 03, 2024 9:44 am Find an asset allocation that you can hold long term, implement that allocation, and (above all) stay the course. :beer
I think these sentiments are presented on this board extremely frequently, but the discussion of what it entails is so much less frequent or developed. Often the entire discussion around this topic is simply someone posting a table with drawdowns based on 2008 performance. I have rarely run across well developed discussions diving deeper into allocation decisions and portfolio construction- which has resulted in the numerous "never again bond funds" and frustration by members at the recent performance (or lack of) in their portfolios.
There has been forum discussion ad nauseam on selecting an equity allocation among small cap, small cap value, SP500, total US stock, total international stock, etc.

I disagree with this assertion. There has been much discussion about the numbers involved (70/30 65/35 etc). Those get thrown around all the time. But in the threads I have read there isn't much discussion deeper than that. 60/40 is "more conservative" than 80/20. But rarely do I see much of a deep dive than that- because everything is based off of a simple 3 fund - Total US, Total international Total bond etc, which has resulted in many saying "hey, what the heck..my "safe" assets have declined and the corresponding response being " You should have known what you were investing in"
OP needs to first understand he is performance chasing and that it is not a good strategy long term. Once he realizes that, he can move to step 2, which is beginning to think of a plan that he can stick with.

Step 2 can take a long time and may involve a lot of personal research. It likely will take several adjustments until a solid plan is implemented. Personally, it took me several months to come up with a plan that I was really comfy with -- I went through 2022 without caring that my portfolio losing a quarter of it's value.

OP is not at step 2 yet. When he's there, we can help him answer his questions about AA, etc.
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Re: Small cap lagging large cap in portfolio

Post by coachd50 »

ApeAttack wrote: Wed Jul 03, 2024 10:19 am
coachd50 wrote: Wed Jul 03, 2024 10:07 am
dogagility wrote: Wed Jul 03, 2024 9:59 am
coachd50 wrote: Wed Jul 03, 2024 9:50 am
dogagility wrote: Wed Jul 03, 2024 9:44 am Find an asset allocation that you can hold long term, implement that allocation, and (above all) stay the course. :beer
I think these sentiments are presented on this board extremely frequently, but the discussion of what it entails is so much less frequent or developed. Often the entire discussion around this topic is simply someone posting a table with drawdowns based on 2008 performance. I have rarely run across well developed discussions diving deeper into allocation decisions and portfolio construction- which has resulted in the numerous "never again bond funds" and frustration by members at the recent performance (or lack of) in their portfolios.
There has been forum discussion ad nauseam on selecting an equity allocation among small cap, small cap value, SP500, total US stock, total international stock, etc.

I disagree with this assertion. There has been much discussion about the numbers involved (70/30 65/35 etc). Those get thrown around all the time. But in the threads I have read there isn't much discussion deeper than that. 60/40 is "more conservative" than 80/20. But rarely do I see much of a deep dive than that- because everything is based off of a simple 3 fund - Total US, Total international Total bond etc, which has resulted in many saying "hey, what the heck..my "safe" assets have declined and the corresponding response being " You should have known what you were investing in"
OP needs to first understand he is performance chasing and that it is not a good strategy long term. Once he realizes that, he can move to step 2, which is beginning to think of a plan that he can stick with.

Step 2 can take a long time and may involve a lot of personal research. It likely will take several adjustments until a solid plan is implemented. Personally, it took me several months to come up with a plan that I was really comfy with -- I went through 2022 without caring that my portfolio losing a quarter of it's value.

OP is not at step 2 yet. When he's there, we can help him answer his questions about AA, etc.
I don't disagree. I am just saying that the threads I constantly come across spend lots of time typing numbers (70/30 60/40 62/38... ) but seem to spend less time really discussing the implications of those numbers. This has been evident recently regarding the /"x" portion of the allocation.
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Re: Small cap lagging large cap in portfolio

Post by Wannaretireearly »

arcticpineapplecorp. wrote: Wed Jul 03, 2024 7:19 am
Wannaretireearly wrote: Tue Jul 02, 2024 10:30 pm Where’s the Callan table when we need it ;)
right here at the wiki:

https://www.bogleheads.org/wiki/File:Ca ... eturns.png
Excellent. Thanks!
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Re: Small cap lagging large cap in portfolio

Post by brightlightstonight »

rule of law guy wrote: Wed Jul 03, 2024 9:56 am I have posted before how large cap should beat out small cap as technology becomes a greater driver of returns. especially with AI penetration, which will occur early for large cap. later (and less) for small cap.
I would think that history suggests rather the opposite. In technological booms (railroads, electricity, internet, etc.), the common pattern is:

1. A small number of huge winners (which are exceedingly difficult to predict beforehand)
2. A large number of bubble companies which collapse when the bubble does (the timing of which is only obvious in the rearview mirror)
3. Commodification of the underlying technology, reducing profits of the huge winners
4. A large win for users of the technology after the bubble (which is why you really really want to own the market, since you've no idea which companies are going to successfully use the technology and which won't)

"Technology" isn't something that's just emerged as a force this decade - we've got 180 years of history to look back on! I wonder if #3 truly holds this time around - there do seem to be some reasons why firms like Amazon can effectively print money, but I see zero reason to think Nvidia, Alphabet, Microsoft, etc. truly have a lock on things. (Intel seemed to, until it didn't; Microsoft spent a decade down, and I couldn't have predicted it would come back as well as it has.)

(Plus, trees don't grow to the sky.)
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