How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

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heybro
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How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by heybro » Sat May 05, 2018 3:28 am

My employer's 401k does not offer a Total Stock Market Index Fund. They only offer the SP 500 and the 'Russell Small Cap Completeness Index Fund' which is supposed to follow the Russell Small Cap Completeness Index. Does anyone know what percent of each would mirror the holdings of the Total Stock Market Index Funds. And, would anything still be missing? Thank you!


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JoMoney
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by JoMoney » Sat May 05, 2018 4:12 am

It appears that the "Russell Small Cap Completeness Index" is everything in the Russell 3000 Index that's not in the S&P 500.
The Russell 3000, which is a 'Total Market' index may differ slightly from the CRSP Total Market Vanguard uses, but the differences would be trivial. The S&P 500 is about 80% of the market so the ratio would be about 80/20.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

heybro
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by heybro » Mon May 07, 2018 2:20 am

85% Vanguard 500 Index Fund (VFINX)
15% iShares Russell 2000 Index (IWM)
Updated 27 Dec 2017

https://www.bogleheads.org/wiki/Approxi ... ock_market

Does this mean 15% ?

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JoMoney
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by JoMoney » Mon May 07, 2018 2:50 am

Be clear about what index you're talking about.
The "Russell 2000 Index" is specifically a small-cap index, and is a different index than the "Russell Small Cap Completeness Index" which is effectively the same as the Vanguard Extended market index fund.
Anything between 10-25% is going to be about right. I wouldn't fuss about it too much, but then again, I'm in the camp that believes owning just the S&P 500 is fine, and don't see the benefit of adding the smaller cap stocks.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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JoMoney
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by JoMoney » Mon May 07, 2018 3:02 am

If you look at the Factsheets over at S&P you can see what they list as the current weightings by "Total Market Cap" using their indices as of end of April.

S&P Total Market, Total Market Cap: $29,212,070.54
https://us.spindices.com/indices/equity ... -index-tmi

S&P 500, Total Market Cap: $23,595,622.27
https://us.spindices.com/indices/equity/sp-500

S&P Completion Index, Total Market Cap: 5,601,232.22
https://us.spindices.com/indices/equity ... n-index-ci

23,595,622.27 / 29,212,070.54 = 81%
5,601,232.22 / 29,212,070.54 = 19%


Here's a Growth Chart of the S&P Completion Index, and the Russell Small Cap Completeness Index, and the Russell 2000 Index for comparison
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

heybro
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by heybro » Mon May 07, 2018 11:07 am

JoMoney wrote:
Mon May 07, 2018 2:50 am
Be clear about what index you're talking about.
The "Russell 2000 Index" is specifically a small-cap index, and is a different index than the "Russell Small Cap Completeness Index" which is effectively the same as the Vanguard Extended market index fund.
Anything between 10-25% is going to be about right. I wouldn't fuss about it too much, but then again, I'm in the camp that believes owning just the S&P 500 is fine, and don't see the benefit of adding the smaller cap stocks.
Thank you so much! Actually, I am seriously wanting to just do 100% SP 500 for stocks. It's the only fund in my employer's 401k that I like! Maybe you could reassure me that it might be an OK idea. If I'm 100% SP 500, then I don't have to risk 'tinkering around' with it. Thank you!

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JoMoney
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by JoMoney » Mon May 07, 2018 5:14 pm

A low cost S&P 500 index fund is what Warren Buffett suggests for most people
https://finance.yahoo.com/news/warren-b ... 40222.html

There are other more "complete" market indices like the Wilshire 5000, Russell 3000, S&P 1500, S&P Total Market, CRSP US Total Market Index, MSCI US Broad Market, FTSE USA All Cap... BUT the S&P 500 is also "...Considered to be a proxy of the U.S. equity market...".
The S&P 500 is probably the most widely quoted broad U.S. market index. It's >80% of the market by weight, .99 correlated with other broader market indices, and has had essentially the same returns going back over history.
Here's a growth chart of the WIlshire 5000 and S&P 500 going back to 1970

The stocks that are missing from the S&P 500 compared to the broader market are almost entirely the higher risk, small-cap, lower volume/liquidity (higher transaction costs), unseasoned new IPO stocks, etc... You're not missing the "leading companies in leading industries".
There is an argument, that the higher risk stocks should have higher returns, or that by mixing in these less correlated stocks it will smooth out better leading to a higher "risk adjusted return". I don't buy into that argument, it's not completely true but also not completely false. You can look at it and make up your own mind (I'm also partial to the idea that human judgement can be a valuable thing).

From my view, the only advantage I see in a "Total Market" fund over the S&P 500, is that if the fund you choose is the same cost/expense ratio as the S&P fund, and has a stock lending program that gives all the proceeds back to the fund (which is not always the case), those low-volume/liquidity stocks offer more lending income to the fund. It is a mostly trivial amount though, and has to be weighed with the risks as well.

...and Yes, tinkering too much is also a risk. It's one of the reasons I stopped individual stock picking and just use a S&P 500 fund mixed with some cash & bonds. If I was owning a bunch of individual stock funds and tinkering with it I'd just as soon go back to stock picking.
Last edited by JoMoney on Mon May 07, 2018 5:25 pm, edited 2 times in total.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

retiredjg
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by retiredjg » Mon May 07, 2018 5:22 pm

heybro wrote:
Mon May 07, 2018 11:07 am
Actually, I am seriously wanting to just do 100% SP 500 for stocks. It's the only fund in my employer's 401k that I like! Maybe you could reassure me that it might be an OK idea. If I'm 100% SP 500, then I don't have to risk 'tinkering around' with it. Thank you!
Using the 500 index alone is just fine.

If you decide to add on the "completness index" anything roughly 85/15 to 75/25 would be fine. The real number is probably something like 82/18 or 80/20 but very rough approximations are good enough for this.

It is a bit counter-intuitive, but there is NOTHING precise about allocations. Just get close and call it good.

joer1212
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by joer1212 » Thu Jun 14, 2018 1:45 am

To my dismay, my employer recently replaced my mid-cap and small-cap index funds with with a single smid-cap index fund that tracks the Russell Small Cap Completeness Index. The problem is that this greatly reduces my flexibility to tilt my portfolio.
For example, I can no longer tilt to small-caps, without also tilting to mid-cap stocks (and vice-versa). I had much more flexibility when my employer offered separate funds, as I could increase or reduce my exposure to each asset class separately.
Question: does anyone know what percentage of the Russell Small Cap Completeness Index consists of small-cap and mid-cap stocks? Is it 70% mid-cap/30% small-cap? Is it 80/20 mid/small-cap? I can't seem to find this information anywhere.

jalbert
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by jalbert » Thu Jun 14, 2018 3:28 am

A completion index for the S&P 500 is about 50% mid-caps and 50% small-caps. Hard to be precise because there is no single agreed upon delineation between mid-caps and small-caps.

But the S&P500 is about the largest 80% of the market, and the Russell 1000 is about 90% of the market. Many folks consider the part of the market not covered by the Russell 1000 to be the small-cap universe. This would define 10% of the market as small-cap. Together with 80% in the S&P500, that leaves 10% for mid-caps. Again, it will vary some depending on where you draw the lines of separation between mid and small.
Risk is not a guarantor of return.

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JoMoney
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by JoMoney » Thu Jun 14, 2018 4:43 am

As was already mentioned, where the line is between "small" and "mid" is up to different interpretations.
The Russell Small Cap Completeness Index is everything that's in the Russell 3000 (Total Stock Market) that's not in the S&P 500.
Therefore is should be pretty much the same as Vanguard Extended Market Index Fund (VEXMX), which tracks the same market segment, but using the "S&P Completion Index". Here's a chart demonstrating how well VEXMX tracks with the Russell Completion index: Chart Link
You can then use Vanguard's VEXMX fund as a proxy in various tools to measure the exposure in other tools
Such as Morningstar's details on the fund:
Image
Or use Portfolio Visualizer to do a factor regression and see that it has a 0.54 loading on the "Small - SmB Factor"
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

joer1212
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by joer1212 » Thu Jun 14, 2018 2:03 pm

jalbert wrote:
Thu Jun 14, 2018 3:28 am
A completion index for the S&P 500 is about 50% mid-caps and 50% small-caps. Hard to be precise because there is no single agreed upon delineation between mid-caps and small-caps.
Let's define small-caps as companies worth between 300 million to 2 billion, and mid-caps between 2 and 10 billion.
Would the completion index still be 50/50 using this metric?

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JoMoney
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Re: How to Use Russell Small Cap Completeness Index Fund with SP500 to Mirror Total Stock Market.

Post by JoMoney » Thu Jun 14, 2018 2:16 pm

joer1212 wrote:
Thu Jun 14, 2018 2:03 pm
jalbert wrote:
Thu Jun 14, 2018 3:28 am
A completion index for the S&P 500 is about 50% mid-caps and 50% small-caps. Hard to be precise because there is no single agreed upon delineation between mid-caps and small-caps.
Let's define small-caps as companies worth between 300 million to 2 billion, and mid-caps between 2 and 10 billion.
Would the completion index still be 50/50 using this metric?
According to Vanguard's data on their equivalent completion index fund,
https://investor.vanguard.com/mutual-fu ... olio/vexmx
The "median market cap" of the fund is: $4.5 billion
I understand that as half the fund is invested below the $4.5 billion market-cap point, and half above that.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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