Tilt tward small & mid capital for 1 to 2% more return

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WhiteMaxima
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Tilt tward small & mid capital for 1 to 2% more return

Post by WhiteMaxima » Tue Jun 12, 2018 1:19 pm

Let's say you will have 30 to 40 years to invest. Assume small mid cap has 1 to 2% premium above large cap and compound power theory holds.

dbr
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by dbr » Tue Jun 12, 2018 1:25 pm

And ??????

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FIREchief
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by FIREchief » Tue Jun 12, 2018 1:39 pm

On what basis are you making your assumption?
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oldcomputerguy
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by oldcomputerguy » Tue Jun 12, 2018 1:56 pm

If tilting guaranteed 1 to 2 percent more return per year, I might. But it's not guaranteed.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

Grt2bOutdoors
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by Grt2bOutdoors » Tue Jun 12, 2018 1:58 pm

WhiteMaxima wrote:
Tue Jun 12, 2018 1:19 pm
Let's say you will have 30 to 40 years to invest. Assume small mid cap has 1 to 2% premium above large cap and compound power theory holds.
Is this question being asked because small caps are outperforming the collective market this year, to date?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Jack FFR1846
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by Jack FFR1846 » Tue Jun 12, 2018 2:00 pm

Let's assume that small cap underperforms the market by 6% and mid cap underperforms by 1%. Ask yourself the question again.
Bogle: Smart Beta is stupid

dcabler
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by dcabler » Tue Jun 12, 2018 2:30 pm

Grt2bOutdoors wrote:
Tue Jun 12, 2018 1:58 pm
WhiteMaxima wrote:
Tue Jun 12, 2018 1:19 pm
Let's say you will have 30 to 40 years to invest. Assume small mid cap has 1 to 2% premium above large cap and compound power theory holds.
Is this question being asked because small caps are outperforming the collective market this year, to date?
I don't even see a question....

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JoMoney
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by JoMoney » Tue Jun 12, 2018 2:51 pm

That's a lot of assumptions.... why stop there? If we're imagining all sorts of things ... lets imagine a 20 year period like 1979-1999 where Vanguard's S&P 500 index had a CAGR of 17.6%
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

ncbill
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by ncbill » Tue Jun 12, 2018 3:00 pm

IIRC from what I've read here, funds designed to take advantage of those tilts have had a hard time actually capturing those premiums in the real world.

The Wizard
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by The Wizard » Tue Jun 12, 2018 3:27 pm

Just plot VFIAX, VIMAX, and VSMAX on the same graph for various time periods in M* to see how Large, Mid, and Small Caps did relative to each other.
Not hard to do.
Then make your own decision on how to tilt...
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MotoTrojan
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by MotoTrojan » Tue Jun 12, 2018 3:30 pm

WhiteMaxima wrote:
Tue Jun 12, 2018 1:19 pm
Let's say you will have 30 to 40 years to invest. Assume small mid cap has 1 to 2% premium above large cap and compound power theory holds.
If you truly believe in the size premium, why bother with mid-caps.

Also value is an even stronger premium, especially when combined with small.

I tilt 25% of domestic to S&P600 value. Who knows if it’ll work out but it calms my tinkerer gene.

WhiteMaxima
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by WhiteMaxima » Tue Jun 12, 2018 3:36 pm

The Wizard wrote:
Tue Jun 12, 2018 3:27 pm
Just plot VFIAX, VIMAX, and VSMAX on the same graph for various time periods in M* to see how Large, Mid, and Small Caps did relative to each other.
Not hard to do.
Then make your own decision on how to tilt...
during last ten years, small beat large. mid doing similar as large. If I could do 1.2 mil small instead of 1.0 mil large during my accumulate phase 9say (30 years) , I will take that risk.

ExitStageLeft
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by ExitStageLeft » Tue Jun 12, 2018 5:47 pm

WhiteMaxima wrote:
Tue Jun 12, 2018 3:36 pm
during last ten years, small beat large. mid doing similar as large. If I could do 1.2 mil small instead of 1.0 mil large during my accumulate phase 9say (30 years) , I will take that risk.
Would you have the 20% larger portfolio if you took that risk 30 years ago? Nope. Let's compare an 80/20 portfolio based on the three-fund model, with 30% of equities in total stock market. In the tilt version, you put make 15% of equities be mid-cap and 15% of equities be small cap. Here are the portfolios visualized.

If you started accumulating in 1988 by contributing $10,000 per year and adjusted that each year for inflation, after thirty years you would end up with $1.58M with the standard portfolio and $1.68M with the tilt. Not a bad strategy, as long as history repeats itself.

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Reb Tevye
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Re: Tilt tward small & mid capital for 1 to 2% more return

Post by Reb Tevye » Tue Jun 12, 2018 7:30 pm

I have 30-40 years to invest, and love free lunches.
Or even a couple passes through the Costco free samples line.

What was the question again?
"So, what would have been so terrible if I had a small fortune?"

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