Vanguard Small Cap Index <OR> Small Cap Value Index

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ronin
Posts: 41
Joined: Wed Apr 22, 2009 9:17 pm

Vanguard Small Cap Index <OR> Small Cap Value Index

Post by ronin » Thu Jan 27, 2011 2:09 am

I would like to increase my small cap equity exposure to complement investments in TSM & TBM. I’m trying to decide between adding Vanguard’s Small Cap Index (Admiral) or Vanguard’s Small Cap Value Index (Investor since no Admiral class appears to exist).

What considerations might I want to include in making this decision and are there any outright recommendations/opinions?

Thank you!

DaveS
Posts: 1308
Joined: Fri Jun 15, 2007 9:42 am
Location: Reno, NV

Post by DaveS » Thu Jan 27, 2011 2:42 am

The Small Value class has traditionally had higher returns with less correlation to the large blend funds you hold, than either small blend or small growth. Recent returns don't bear this out, but that may have more to do with the collapse of financials. The reason for the long term out performance is that small growth is one of the lowest returning asset classes. This is explained by people over paying for small growth stocks hoping to hold the next Microsoft.
If I were in your shoes I would go for total international (assuming you have no international). Then I would add small value and REIT later. But of the choice you presented I would take small value, over small blend. Interesting that there is no admiral class. The ETF is VBR. Dave

ronin
Posts: 41
Joined: Wed Apr 22, 2009 9:17 pm

Post by ronin » Thu Jan 27, 2011 9:09 am

Thanks for sharing your thoughts on this dave. I forgot to mention that I have Total International Index to address non-US equities as you suggested.

Nowizard
Posts: 1392
Joined: Tue Oct 23, 2007 5:33 pm

Small Cap Value;

Post by Nowizard » Thu Jan 27, 2011 9:52 am

29% return for 2010, 7.5% over ten years, 2.0% YTD, 41st percentile in its class YTD. I chose it over Small Cap and hold it at a level of 5+% of our portfolio. If you are diversifying and tilting toward value, it is worth considering.

tim

YDNAL
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Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Vanguard Small Cap Index <OR> Small Cap Value Inde

Post by YDNAL » Thu Jan 27, 2011 10:49 am

ronin wrote:I would like to increase my small cap equity exposure to complement investments in TSM & TBM. I’m trying to decide between adding Vanguard’s Small Cap Index (Admiral) or Vanguard’s Small Cap Value Index (Investor since no Admiral class appears to exist).

What considerations might I want to include in making this decision and are there any outright recommendations/opinions?
ronin wrote:Thanks for sharing your thoughts on this dave. I forgot to mention that I have Total International Index to address non-US equities as you suggested.
ronin,

You are bound to receive opposing responses - one way or another.
  • - Your most important decision is Stock/Bond split - you didn't address specifics, but you hold Total Bond.
    - Thereafter, for Domestic Equities, IF you believe the SmB and HmL premia (Fama & French) should persist, Small Cap Value fits the bill for tilt.
That said, those chosing to tilt must decide the *magnitude* of the tilt which is quite a personal decision. Personally, for Equities, I'm a proponent of 50/50 US/Domestic, 50/50 Large/Mid-Small - the latter (Mid-Small tilt) towards Small Value.

Instead of 70/30 VTSMX/VISVX (60/40 would be Large-tilted)
17 17 16
07 09 06
13 10 05

I prefer 60/40 VLACX/VISVX
16 17 16
08 09 05
15 11 04

Please due your own due diligence.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

Mulligan
Posts: 47
Joined: Wed Jul 23, 2008 9:55 pm

Post by Mulligan » Thu Jan 27, 2011 9:50 pm

Once consideration for this question is if the investment is in a taxable or tax-deferred account. Small Cap Value is not real tax efficient, so if this money goes into a taxable account you might want to consider the tax impact.

Mulligan

ronin
Posts: 41
Joined: Wed Apr 22, 2009 9:17 pm

Post by ronin » Fri Jan 28, 2011 12:19 am

The funds would be in a Roth IRA. Sounds like the value may be what makes more sense for me, especially since I wouldn't be opposed to picking some more exposure to REITs above and beyond what in my TSM and Total International Index.

Thanks all for you comments.

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