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Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Tue Jun 12, 2018 1:42 pm
by Oddball
After reading here for a bit my wife and I have moved our funds away from active management and are self directly towards a "3-fund" type portfolio (50% US, 25% International, 25% bonds ) within the limitations of our work sponsored 401k plans. Our non-401k funds are all at vanguard and therefore all of our "US Stocks" buckets there are filled with VTSAX (Vanguard Total Stock Market Index Fund). Now, while that fund holds 3629 stocks, the top 10 holdings account for 18% of the fund, with 2.8% of the fund being Apple (the largest single holding) followed by MicroSoft at 2.6%. I was surprised to see that our "very diversified portfolio" still has a couple thousand in Apple and Microsoft stock!

So basically I am wondering if there are large cap funds which exclude say the top 10 or 20 holdings. Alternatively, as we are still migrating over a last couple accounts which have been earmarked for VTSAX, maybe put those into small cap like VSMAX instead? Or, I guess I just don't have to think too much about it and just hold all the US stock in VTSAX....

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Tue Jun 12, 2018 1:49 pm
by Pajamas
If it is only 5.4% of your portfolio, it is not anything to be overly concerned about. Many otherwise strict adherents to the Boglehead philosophy of investing do have a similar amount in individual stocks for various reasons including fun. You can always liquidate the holdings but consider taxes when timing sales.

https://www.google.com/search?q=site%3A ... stocks+fun

VTSAX is market weighted so you would expect the largest companies to constitute a significant percentage of the fund. Some people do think that the effect of a few large companies carrying so much weight is problematic but it does reflect current reality.

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Wed Jun 13, 2018 1:55 pm
by Phineas J. Whoopee
If the market portfolio is not diversified, then what is, and what definition are you using for the word diversified?
PJW

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Wed Jun 13, 2018 2:08 pm
by MotoTrojan
Apple having a 50% crash while the rest of the market is swimming along fine would be a pretty unprecedented event and would result in a 1.4% drop. In reality these mega-corps are so highly correlated to the market that holding a couple percent of the biggest doesn't concern me at all. They do make equal-weight S&P500 funds, but the expenses/taxes will increase quite a bit. Returns on these are usually a bit higher but that is simply the tilt to smaller companies.

Perhaps a small-cap (consider value too) tilt would make you feel better and more diversified, depending on your definition. Just more complexity (I use S&P 600 Value via VIOV, VSMAX is too big for my tastes).

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Wed Jun 13, 2018 2:47 pm
by vineviz
MotoTrojan wrote:
Wed Jun 13, 2018 2:08 pm
Apple having a 50% crash while the rest of the market is swimming along fine would be a pretty unprecedented event and would result in a 1.4% drop.
And better yet, by holding the market you also own Dell, Samsung, Google, Microsoft, and every other public company that would benefit from Apple’s hypothetical demise.

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Wed Jun 13, 2018 3:12 pm
by jhfenton
Phineas J. Whoopee wrote:
Wed Jun 13, 2018 1:55 pm
If the market portfolio is not diversified, then what is, and what definition are you using for the word diversified?
PJW
Presumably a reasonable definition, such as the minimization of concentration in individual securities.

I consider our heavily tilted portfolio to be better diversified than U.S. Total Stock and ex-US Total International.

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Wed Jun 13, 2018 4:10 pm
by Whakamole
There is an S&P 500 index fund that excludes tech and telecom, SPXT, so it excludes some of the biggest holdings (like Apple, Google, Microsoft, etc.) Notably it does not exclude Amazon, which is considered a retail company, nor other top-10 holdings like Berkshire Hathaway, Exxon, etc.

I think it's an interesting choice for tech sector workers who already have a lot invested in the tech sector (through their jobs, stock and stock options, etc.)

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Thu Jun 14, 2018 9:32 am
by Oddball
jhfenton wrote:
Wed Jun 13, 2018 3:12 pm
Phineas J. Whoopee wrote:
Wed Jun 13, 2018 1:55 pm
If the market portfolio is not diversified, then what is, and what definition are you using for the word diversified?
PJW
Presumably a reasonable definition, such as the minimization of concentration in individual securities.

I consider our heavily tilted portfolio to be better diversified than U.S. Total Stock and ex-US Total International.
Yeah, for a fund to hold 3600+ stocks but have ~20% of it value locked into the top 10 stocks doesn't sound highly diversified to me. But it is what it is, and those top 10 companies are just that large of a part of the US market. I will throw that last account, which is about 20% of our "US Stock" bucket into small cap instead of VTSAX and call it a day.

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Fri Jun 15, 2018 1:06 am
by duricka
I, too, am concerned about this for some time, especially about Amazon, Tesla and Netflix being a too big part of my funds...

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Fri Jun 15, 2018 5:27 am
by oldcomputerguy
Oddball wrote:
Tue Jun 12, 2018 1:42 pm
So basically I am wondering if there are large cap funds which exclude say the top 10 or 20 holdings.
Why would you want to? Those larger holdings account for larger portions of the economy and of the total return of the market.

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Fri Jun 15, 2018 6:20 am
by fortyofforty
You could always add a portion of your portfolio to an additional small capitalization fund, or SCV. You are, by definition, overweighting those other stocks, based on a "market neutral" approach. That doesn't say it's wrong, just that you are trying to outguess "the market" and its free-float market capitalizations.

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Fri Jun 15, 2018 6:37 am
by MikeG62
OP, you could consider an equal weight S&P 500 index fund (something like RSP) which would take care of the concentration concern you have. I am not saying you should do that, just that you could do it.

Alternatively, make sure you hold a fair share of mid and small cap stocks. This would help dilute a bit of concentration risk from the handful of massive stocks in the traditional S&P 500 index fund. FWIW, my target domestic equity allocation is roughly 50% LC, 25% MC and 25% SC.

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Fri Jun 15, 2018 7:18 am
by rkhusky
If it helps, think of Apple as 5 or 6 separate companies lumped together under one ownership umbrella. You want your portfolio to be relatively indifferent to the ownership umbrella.

Re: Diversified portfolio but still too much Apple, Microsoft, etc.

Posted: Fri Jun 15, 2018 7:43 am
by bgf
index investors are a special subset of individual stock investors. they meet two special criteria:

1) they own all the stocks in the index, not just some;
2) the amount of each stock owned is determined by its market cap.

if you chose not to own the top 10-20 largest stocks in an index, you would be doing two counterproductive things: 1) you would effectively be SHORT those largest 10-20 stocks, 2) you would be LESS diversified as you would hold fewer companies.