David, I too tilt SCV and while I understand the thought process behind saying you might have to stay the course through a decade or more of SCV underperformance, it has never happened … at least not with US SCV since 1928.David Jay wrote: ↑Thu May 31, 2018 6:34 pm There will be periods of underperformance in any tilting strategy. Jumping in-and-out of various strategies is a portfolio return killer.
As I just wrote on Rick Ferri’s “Simplicity” thread earlier today: "You have to believe in your allocation enough to convince yourself to stay the course though a decade or more of under-performance."
[edit] I am not against an SCV tilt. I tilt SCV and intl SC. But I know why I tilt and I am prepared to hold my tilts regardless of market conditions.
Below I compare the performance of the S&P 500 Index (VFINX) (as a proxy for the Total Stock Market (VTSMX)) to the performance of the Dimensional US Small Cap Value Index for the 90 year period 1928 through 2017.
For reference, here is the portfolio x-ray comparison for VTSMX vs. VFINX. It’s not perfect, but it’s not bad.
Code: Select all
CLASS VTSMX VFINX
Large Value 24 29
Large Core 25 30
Large Growth 27 32
Mid Value 6 3
Mid Core 6 4
Mid Growth 6 2
Small Value 2 0
Small Core 2 0
Small Growth 2 0
Code: Select all
S&P 500 Index Dim US SCV Index
Year Return Return
1928 43.6% 32.4%
1929 -8.4% -37.2%
1930 -24.9% -43.6%
1931 -43.3% -55.5%
1932 -8.2% -10.5%
1933 54.0% 125.2%
1934 -1.4% -6.3%
1935 47.7% 47.7%
1936 33.9% 66.5%
1937 -35.0% -50.6%
1938 31.1% 32.6%
1939 -0.4% -3.9%
1940 -9.8% -8.1%
1941 -11.6% -0.2%
1942 20.3% 34.1%
1943 25.9% 78.5%
1944 19.7% 52.6%
1945 36.4% 65.4%
1946 -8.1% -10.4%
1947 5.7% 8.8%
1948 5.5% -4.9%
1949 18.8% 19.7%
1950 31.7% 63.4%
1951 24.0% 9.9%
1952 18.4% 8.9%
1953 -1.0% -10.6%
1954 52.6% 64.4%
1955 31.5% 23.8%
1956 6.6% 1.7%
1957 -10.8% -18.6%
1958 43.4% 77.0%
1959 12.0% 15.0%
1960 0.5% -10.7%
1961 26.9% 29.2%
1962 -8.7% -10.3%
1963 22.8% 29.3%
1964 16.5% 26.1%
1965 12.5% 40.0%
1966 -10.0% -9.6%
1967 24.0% 69.4%
1968 11.1% 49.0%
1969 -8.5% -28.9%
1970 4.0% -1.3%
1971 14.3% 15.1%
1972 19.0% 7.8%
1973 -14.7% -30.2%
1974 -26.5% -17.8%
1975 37.2% 65.7%
1976 23.8% 58.7%
1977 -7.2% 22.4%
1978 6.6% 22.9%
1979 18.4% 35.3%
1980 32.4% 24.4%
1981 -4.9% 20.3%
1982 21.4% 36.9%
1983 22.5% 48.9%
1984 6.3% 1.6%
1985 32.2% 29.1%
1986 18.5% 8.6%
1987 5.2% -5.9%
1988 16.8% 33.9%
1989 31.5% 13.7%
1990 -3.1% -24.2%
1991 30.5% 47.1%
1992 7.6% 34.8%
1993 10.1% 25.9%
1994 1.3% 2.5%
1995 37.6% 31.4%
1996 23.0% 25.7%
1997 33.4% 38.5%
1998 28.6% -5.6%
1999 21.0% 8.2%
2000 -9.1% 19.9%
2001 -11.9% 28.6%
2002 -22.1% -8.4%
2003 28.7% 66.9%
2004 10.9% 24.0%
2005 4.9% 7.4%
2006 15.8% 21.7%
2007 5.5% -11.9%
2008 -37.0% -36.9%
2009 26.5% 51.2%
2010 15.1% 31.0%
2011 2.1% -6.5%
2012 16.0% 16.7%
2013 32.4% 41.9%
2014 13.7% 3.4%
2015 1.4% -8.4%
2016 12.0% 37.2%
2017 21.8% 7.6%
I realize this is looking at 90 years of historical data and is no guarantee of what may happen in the future. But, 5 times the S&P underperformed US SCV for 4 or more straight years, 2 times US SCV underperformed the S&P for 4 or more straight years.
I know history doesn’t repeat itself, but I do believe it often rhymes.
If over the last 90 years you were trying to convince yourself to hold on to your allocation through long periods of (relative) underperformance it seems you were more likely talking about holding on to the S&P vis-a-vis SCV, not the other way around.
Just my 2 cents,
One Ping