Tilting very slightly towards small & mid caps. Is this a good idea?

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PersianRugs
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Tilting very slightly towards small & mid caps. Is this a good idea?

Post by PersianRugs » Wed May 15, 2019 10:37 pm

I am very young (24), and considering tilting a bit heavier into small and mid caps and would like to know if my strategy is sound.

VTSAX is comprised of 77% large caps, 17% mid caps, and 6% small caps.

My ideal 401k AA is 75%/25% (US/International). No bond allocation yet until I hit my early-mid 30's.

In my 401k, I have a

- Large Cap Index Fund (Which benchmarks S&P 500) [Expense Ratio: 0.06%]
This has a 3 year return of 13.3%, a 5 year return of 10.8%, and a 10 year return of 15.8%

- Mid Cap Index Fund (Which benchmarks S&P 400) [Expense Ratio: 0.08%]
This has a 3 year return of 11.1%, a 5 year return of 8.2%, and a 10 year return of 16.1%

- Small Cap Index Fund (Which benchmarks Russell 2000) [Expense Ratio: 0.08%]
This has a 3 year return of 12.5%, a 5 year return of 6.6%, and a 10 year return of 15.1%

It looks like over longer periods of time, mid & small caps have better returns than large caps.

Similarly, this chart shows that as well:

Image

So as someone with 35+ years left until retirement, and has a pretty aggressive risk tolerance, would it make sense to tilt a bit more towards mid and small caps?

Instead of the US Total Market which is 77/17/6 how about I go 62/28/10? That would be a 1.6 times tilt towards mid & small caps.

After including my 25% international, the AA would be 46/21/8/25 (large/mid/small/international).

I'm just spitballing numbers, but is that too much of a tilt - am I too much into either mid or small? Is there a better allocation that I can do? Does my idea make sense overall?

Any help in tweaking the percentages would be appreciated.

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Dialectical Investor
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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by Dialectical Investor » Wed May 15, 2019 11:10 pm

Aside from the probability that any particular return of a chosen asset class will materialize, calculate your total return given whatever asset class returns you want to imagine, and compare that to the alternative market-cap weighted portfolio. For instance, what would your return be if 15% of 75% of your portfolio returns an extra 1-1.5%?

You may find the additional return is not very much overall, even if returns are very good for your over-weighted asset classes. (1-1.5% would be very good, IMO.) Factor in the probability of it occurring, any extra costs (perhaps you accounted for those already in your return expectations), and a slight tilt is likely to provide only a slight benefit or a slight detriment.

One may then ask, what is the point? Or, if I am only willing to tilt slightly, should I be tilting at all? Am I not confident the tilt will outperform? Do I think I will not stick with a larger tilt if it underperforms? Are there reasons I am tilting other than higher expected return of these individual assets? Am I comfortable with the prospect of underperforming using those reasons as the basis for my tilt? Have I considered all risks involved? Is there another way to achieve what I am attempting to do? Is that way better or worse? Etc., etc., etc.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by MotoTrojan » Wed May 15, 2019 11:15 pm

I’d probably hold off for now or just tilt towards the small premium by holding 10-20% Russell 2000 and no mids. Many here who tilt small also tilt value via small-value which is historically the best combo but like anything, controversial.

Above post is great though. You really don’t need to tilt and a very small one isn’t going to do much.

I’m a not much older than you and my core portfolio is 55% Total US, 25% International like you, and 20% Small-value.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by pdavi21 » Wed May 15, 2019 11:33 pm

The difference between 45% INTL and 25% INTL is bigger than the difference between 50% small cap and 6% small cap. Figure out your INTL 100% first.

I recommend size tilts add 0-50% of a mid and/or small fund(s). Any more and you risk becoming a sore loser (which makes it tougher to stay the course).

PS: Many small funds are actually primarily mid...check Morningstar.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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PersianRugs
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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by PersianRugs » Wed May 15, 2019 11:35 pm

Dialectical Investor wrote:
Wed May 15, 2019 11:10 pm
Aside from the probability that any particular return of a chosen asset class will materialize, calculate your total return given whatever asset class returns you want to imagine, and compare that to the alternative market-cap weighted portfolio. For instance, what would your return be if 15% of 75% of your portfolio returns an extra 1-1.5%?

You may find the additional return is not very much overall, even if returns are very good for your over-weighted asset classes. (1-1.5% would be very good, IMO.) Factor in the probability of it occurring, any extra costs (perhaps you accounted for those already in your return expectations), and a slight tilt is likely to provide only a slight benefit or a slight detriment.

One may then ask, what is the point? Or, if I am only willing to tilt slightly, should I be tilting at all? Am I not confident the tilt will outperform? Do I think I will not stick with a larger tilt if it underperforms? Are there reasons I am tilting other than higher expected return of these individual assets? Am I comfortable with the prospect of underperforming using those reasons as the basis for my tilt? Have I considered all risks involved? Is there another way to achieve what I am attempting to do? Is that way better or worse? Etc., etc., etc.
Yeah I think I'll play around with portfoliovisualizer.com with a couple different % AA.

My main concern is I want to tilt enough to make a difference, but not enough to where I am extremely aggressive and volatile.

I am definitely on the more aggressive side, but not completely overboard. On a scale of 1-10, if 1 is very risk adverse and 10 is very aggressive, I am probably between a 7.5-8.5.

stlutz
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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by stlutz » Wed May 15, 2019 11:52 pm

There is kind of a lot of debate as to whether there is really a smallcap premium or not. This is a little dated, but is still my favorite BH thread on the subject (and one of my favorite BH threads of all time, for that matter ): viewtopic.php?t=83364

That said, I say go for it. Most investors want to have some type of angle. Those types of things often don't work, but what you are suggesting is very reasonable.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by vineviz » Thu May 16, 2019 5:51 am

PersianRugs wrote:
Wed May 15, 2019 10:37 pm
So as someone with 35+ years left until retirement, and has a pretty aggressive risk tolerance, would it make sense to tilt a bit more towards mid and small caps?

Instead of the US Total Market which is 77/17/6 how about I go 62/28/10? That would be a 1.6 times tilt towards mid & small caps.

After including my 25% international, the AA would be 46/21/8/25 (large/mid/small/international).

I'm just spitballing numbers, but is that too much of a tilt - am I too much into either mid or small? Is there a better allocation that I can do? Does my idea make sense overall?

Any help in tweaking the percentages would be appreciated.
I agree with others that a small tilt probably adds more complexity than actual performance.

I can't speak about what might be "too much" for you, but I will note that since the inception of the iShares Russell 2000 ETF (IWM) and iShares Core S&P 500 ETF (IVV) the combination of the two with maximum diversification came has been 57% in S&P 500 and 43% in Russell 200. (https://www.portfoliovisualizer.com/opt ... M&total1=0)

If I were in your shoes I'd probably do something like this:

• 40% S&P 500
• 30% Russell 200
• 30% international (preferably emerging markets, but total international would be fine).

This combination isn't likely to be substantially more volatile (remember, it's the overall portfolio you care about) than a portfolio based "total index" funds would be. It's definitely better diversified, and possibly will offer very slightly higher expected returns.
Last edited by vineviz on Thu May 16, 2019 7:19 am, edited 1 time in total.
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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by rkhusky » Thu May 16, 2019 6:38 am

pdavi21 wrote:
Wed May 15, 2019 11:33 pm
PS: Many small funds are actually primarily mid...check Morningstar.
Especially since Morningstar redefined mid and small at the beginning of last year. In 2017, Morningstar had Vanguard's Small Cap Index at 40-45% mid-cap. In 2018, it jumped to 60-65% mid-cap, according to Morningstar.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by lakpr » Thu May 16, 2019 6:46 am

vineviz wrote:
Thu May 16, 2019 5:51 am
If I were in your shoes I'd probably do something like this:

50% S&P 500
30% Russell 200
30% international (preferably emerging markets, but total international would be fine).
Adds up to 110% ☺️

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vineviz
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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by vineviz » Thu May 16, 2019 7:19 am

lakpr wrote:
Thu May 16, 2019 6:46 am
vineviz wrote:
Thu May 16, 2019 5:51 am
If I were in your shoes I'd probably do something like this:

50% S&P 500
30% Russell 200
30% international (preferably emerging markets, but total international would be fine).
Adds up to 110% ☺️
Doh!

I meant:
• 40% S&P 500
• 30% Russell 200
• 30% international

I'll mix my original post.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by dbr » Thu May 16, 2019 7:36 am

If you believe in getting higher return by concentrating in small and value factors as found in the Fama-French model you should probably look at your factor loadings on those factors as a direct assessment of what you are doing. Portfolio Visualizer does those regressions.

Are you 100% stocks in your investing? If not looking at your stock/bond allocation is probably the first step.

Larry Swedroe has a book on factor investing that you might want to consult.

After that there is this in the forum: https://www.google.com/search?sitesearc ... &q=tilting

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by sleepysurf » Thu May 16, 2019 7:49 am

rkhusky wrote:
Thu May 16, 2019 6:38 am
Especially since Morningstar redefined mid and small at the beginning of last year. In 2017, Morningstar had Vanguard's Small Cap Index at 40-45% mid-cap. In 2018, it jumped to 60-65% mid-cap, according to Morningstar.
Actually, the current Morningstar profiles for VSIAX (V Small Cap Value) and VSMAX (V Small Cap Blend) are...

VSIAX
Large 0.6
Mid 53.5
Small 44.2
Micro 1.7

VSMAX
Large 0.5
Mid 59.8
Small 38.6
Micro 1.1

You can plug in various hypothetical fund allocations into the Morningstar X-ray tool (or manually enter in Personal Capital) to see what the final asset allocation mix looks like. You might find out you already get sufficient Mid-Cap exposure just with the Total Stock Market plus the two Small Cap funds.
Retired 2018 | ~50/45/5 (partially sliced and diced)

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by patrick013 » Thu May 16, 2019 5:58 pm

PersianRugs wrote:
Wed May 15, 2019 10:37 pm

After including my 25% international, the AA would be 46/21/8/25 (large/mid/small/international).
It's a gamble. For an aggressive portfolio an equal % AA is as good as any AA. I would go with the S&P Small Cap index. The Russell 2000 is a benchmark but the S&P usually gets the higher return.
My Intl AA is small.

viewtopic.php?f=1&t=280615&p=4535206&hilit=img#p4535206
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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by Benosis » Thu May 16, 2019 6:08 pm

pdavi21 wrote:
Wed May 15, 2019 11:33 pm
I recommend size tilts add 0-50% of a mid and/or small fund(s). Any more and you risk becoming a sore loser (which makes it tougher to stay the course).
Sorry, can you expand on this a bit more? Not understanding this portion

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by KyleAAA » Thu May 16, 2019 6:11 pm

Sure, lots of people tilt. People who tilt tend to tilt much stronger than what you suggest, but your plan is fine. For comparison, I tilt 50% of my stock holdings to small cap value.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by PersianRugs » Thu May 16, 2019 6:23 pm

PersianRugs wrote:
Wed May 15, 2019 11:35 pm
On a scale of 1-10, if 1 is very risk adverse and 10 is very aggressive, I am probably between a 7.5-8.5.
KyleAAA wrote:
Thu May 16, 2019 6:11 pm
Sure, lots of people tilt. People who tilt tend to tilt much stronger than what you suggest, but your plan is fine. For comparison, I tilt 50% of my stock holdings to small cap value.
How about a 2.3 times tilt which would be 47/39/14 and after international would become 35/29/11/25. What about that for my risk tolerance?

Or should I just forgo mid cap and go something like 45/30/25 large/small/international?

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by KyleAAA » Thu May 16, 2019 7:09 pm

PersianRugs wrote:
Thu May 16, 2019 6:23 pm
PersianRugs wrote:
Wed May 15, 2019 11:35 pm
On a scale of 1-10, if 1 is very risk adverse and 10 is very aggressive, I am probably between a 7.5-8.5.
KyleAAA wrote:
Thu May 16, 2019 6:11 pm
Sure, lots of people tilt. People who tilt tend to tilt much stronger than what you suggest, but your plan is fine. For comparison, I tilt 50% of my stock holdings to small cap value.
How about a 2.3 times tilt which would be 47/39/14 and after international would become 35/29/11/25. What about that for my risk tolerance?

Or should I just forgo mid cap and go something like 45/30/25 large/small/international?
The exact proportions don't matter all that much. Both your propositions are fine.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by patrick013 » Thu May 16, 2019 7:18 pm

KyleAAA wrote:
Thu May 16, 2019 7:09 pm
PersianRugs wrote:
Thu May 16, 2019 6:23 pm
PersianRugs wrote:
Wed May 15, 2019 11:35 pm
On a scale of 1-10, if 1 is very risk adverse and 10 is very aggressive, I am probably between a 7.5-8.5.
KyleAAA wrote:
Thu May 16, 2019 6:11 pm
Sure, lots of people tilt. People who tilt tend to tilt much stronger than what you suggest, but your plan is fine. For comparison, I tilt 50% of my stock holdings to small cap value.
How about a 2.3 times tilt which would be 47/39/14 and after international would become 35/29/11/25. What about that for my risk tolerance?

Or should I just forgo mid cap and go something like 45/30/25 large/small/international?
The exact proportions don't matter all that much. Both your propositions are fine.
You know the old saying. You bite the dust you buy the farm. It's really up to you then.
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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by Taylor Larimore » Thu May 16, 2019 8:43 pm

PersianRugs:

Before cluttering your portfolio with unneeded funds, read what experts say about Total Market Index Funds:

viewtopic.php?f=10&t=156579

Also read about the importance of Simplicity:

viewtopic.php?f=10&t=156505
Warren Buffett: "There seems to be some perverse human characteristic that likes to make easy things difficult."
Jack Bogle: "The enemy of a good plan is the dream of a perfect plan."
Best wishes.
Taylor
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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by pdavi21 » Thu May 16, 2019 9:04 pm

Benosis wrote:
Thu May 16, 2019 6:08 pm
pdavi21 wrote:
Wed May 15, 2019 11:33 pm
I recommend size tilts add 0-50% of a mid and/or small fund(s). Any more and you risk becoming a sore loser (which makes it tougher to stay the course).
Sorry, can you expand on this a bit more? Not understanding this portion
It's my opinion that at least half of a stock position should be a market cap weighted total market index. After that, it's no longer a tilt, it becomes a mid/small cap portfolio with a total market tilt.

More importantly, a big tilt has a high chance of underperforming (or outperforming) the market for decades. When that happens, a big tilt can lose more money, and the tilter is going to be very tempted to alter their position (which was based more on backtesting than logic and conviction).

So if someone can stay the course, a small tilt may have a decent chance of boosting returns, but for someone who has trouble staying the course, a smaller tilt (or no tilt) is a safer bet.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by Hydromod » Thu May 16, 2019 9:53 pm

My impression is that the benefit of tilting is larger when the various assets have small or negative correlations, or are out of phase. That way you tend to use gains from assets that are becoming overvalued to buy assets that are currently undervalued.

So at any point in time it may seem like the portfolio could be doing better, but the overall effect is to ratchet up the portfolio earnings. This ratchet needs a rough balance in dollar volatility between the assets to be effective. If the weights are right, back tests suggest a slight increase in overall return for a given portfolio volatility. My very limited tests suggest this effect might get the return of a 65/35 blend with the volatility of a 60/40 blend, given balanced weighting between large cap growth and mid cap value, for example. The stock/bond weighting effect is much larger. So I would expect that a small tilt would be hardly noticeable, especially if the expense ratio is noticeably larger in order to get the narrower focus.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by miket29 » Fri May 17, 2019 12:16 am

PersianRugs wrote:
Wed May 15, 2019 11:35 pm
My main concern is I want to tilt enough to make a difference, but not enough to where I am extremely aggressive and volatile.
Don't do it.

As Larry Swedroe writes, factor returns are long-term results. The benefits may not show up for a decade or more. So that means they may underperform for a long time. Given your aversion to volatility then you may end up selling before you see the benefits of the tilt no matter what degree you choose. If you were willing to believe that tilting works and that you might not see the benefits for 10-20 years then it could work for you, but it doesn't sound like you'd still be in the tilted investments by then.

And there's nothing wrong with something simple and understandable like the Boglehead 3-fund portolio. Do that, invest regularly and as much as you can afford, don't watch your results except to rebalance every 2 years or so (there is evidence of momentum, so rebalancing too frequently can end up hurting). The less you watch your portfolio the better.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by dcabler » Fri May 17, 2019 7:06 am

Checking the calendar - yup, it's not been that long since the last tilting debate. I suspect this one will go much along the lines of all of the previous ones :D

Responses will most likely be something like:
1. Do it, you're young! The size factor is now well researched. At least in the past, it provided additional returns that, with some proportions, had the same volatility. Prepare yourself for the riches that surely will follow!
2. For the love of all that is holy, don't even think of it! It's been totally discovered now and it will never reap the rewards you hope it will. Your investing life will end up in a smoldering ruin.
3. Might help, probably won't hurt.

Seriously, it seems you're already familiar with the concept. And so much of investing, despite our ability to look into the past, is going to require at least some leap of faith when looking forward into the future. And it's completely up to you as to what you consider to be unmanageable complexity, not us. Main thing is to choose a path. A lot of advice here is to choose a path and "stick with it". My interpretation of that means don't make large wholesale changes because you don't like the performance you've gotten over the last N years relative to some other portfolio. There will always be another portfolio that has done better than yours.

BTW, my view is #3 and I'm a heavy mid/small value tilter. :sharebeer

Cheers!

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by petulant » Fri May 17, 2019 7:48 am

For the next few years your contributions matter much more than your allocation. Try running historical Portfolio Visualizer but instead of starting at $10,000, start at $0 with suitable annual contributions ($6000-$20000). You will find that the difference among outcomes over 10-15 years for the allocations you are reviewing are negligible. They would matter more once you have sizeable assets. So for the next 10-15 years you would be better off channeling efforts toward financial discipline, growing earnings, and building hobbies/relationships that aren't expensive.

That's doubly the case given the tilts you're talking about. They're just not that big.

I would also caution against relying on the Russell 2000 index for small cap returns. Russell 2000 is notorious for underperforming other small cap indexes, which is generally blamed on 1) fewer screens for quality and 2) front-running indexing changes. In my review of the data, Russell 2000 indexes provided no risk-adjusted benefit over a total stock market index.

I would just do the S&P 500 fund, international, and a bond fund at whatever weights you desire.

I say all this as somebody who is of a similar age (28) and who has lurked these forums for a while. Sometimes it's not easy to stop tinkering. But you're better off looking for value elsewhere.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by dcabler » Fri May 17, 2019 10:10 am

petulant wrote:
Fri May 17, 2019 7:48 am
For the next few years your contributions matter much more than your allocation. Try running historical Portfolio Visualizer but instead of starting at $10,000, start at $0 with suitable annual contributions ($6000-$20000). You will find that the difference among outcomes over 10-15 years for the allocations you are reviewing are negligible. They would matter more once you have sizeable assets. So for the next 10-15 years you would be better off channeling efforts toward financial discipline, growing earnings, and building hobbies/relationships that aren't expensive.

That's doubly the case given the tilts you're talking about. They're just not that big.

I would also caution against relying on the Russell 2000 index for small cap returns. Russell 2000 is notorious for underperforming other small cap indexes, which is generally blamed on 1) fewer screens for quality and 2) front-running indexing changes. In my review of the data, Russell 2000 indexes provided no risk-adjusted benefit over a total stock market index.

I would just do the S&P 500 fund, international, and a bond fund at whatever weights you desire.

I say all this as somebody who is of a similar age (28) and who has lurked these forums for a while. Sometimes it's not easy to stop tinkering. But you're better off looking for value elsewhere.
+1 on much of this, especially the part about savings vs. portfolio choice at your age and choice of small cap indices. Actual total portfolio is always up for debate, so I'll leave that alone.

Regarding different indices, we have data available on the BH wiki.
For example: small cap index historical returns: https://www.bogleheads.org/wiki/US_smal ... ex_returns

And happy to see this from a 28 year old and I wish I had this sort of thinking when I was 28! But I was interested in other things at the time. :D

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by pkcrafter » Fri May 17, 2019 10:43 am

PersianRugs wrote:
Wed May 15, 2019 10:37 pm
I am very young (24), and considering tilting a bit heavier into small and mid caps and would like to know if my strategy is sound.

VTSAX is comprised of 77% large caps, 17% mid caps, and 6% small caps.

My ideal 401k AA is 75%/25% (US/International). No bond allocation yet until I hit my early-mid 30's.

In my 401k, I have a

- Large Cap Index Fund (Which benchmarks S&P 500) [Expense Ratio: 0.06%]
This has a 3 year return of 13.3%, a 5 year return of 10.8%, and a 10 year return of 15.8%

- Mid Cap Index Fund (Which benchmarks S&P 400) [Expense Ratio: 0.08%]
This has a 3 year return of 11.1%, a 5 year return of 8.2%, and a 10 year return of 16.1%

- Small Cap Index Fund (Which benchmarks Russell 2000) [Expense Ratio: 0.08%]
This has a 3 year return of 12.5%, a 5 year return of 6.6%, and a 10 year return of 15.1%

It looks like over longer periods of time, mid & small caps have better returns than large caps.

Similarly, this chart shows that as well:

Image

So as someone with 35+ years left until retirement, and has a pretty aggressive risk tolerance, would it make sense to tilt a bit more towards mid and small caps?

Instead of the US Total Market which is 77/17/6 how about I go 62/28/10? That would be a 1.6 times tilt towards mid & small caps.

After including my 25% international, the AA would be 46/21/8/25 (large/mid/small/international).

I'm just spitballing numbers, but is that too much of a tilt - am I too much into either mid or small? Is there a better allocation that I can do? Does my idea make sense overall?

Any help in tweaking the percentages would be appreciated.
PersinRugs, you are young, new to investing, and appear anxious to capture higher returns. Overloading small/mid is not for the anxious as those asset classes can underperform total market for more than a decade. Small may outperform total market by 10% over time, but if you're holding 25%, your gains won't add much. Maybe you want to consider the Larry portfolio :happy

https://portfoliocharts.com/portfolio/larry-portfolio/

Paul
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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by midareff » Fri May 17, 2019 10:49 am

Everyone dreams of beating the bogey (S&P500). .... and if I get complex enough I can make it happen, right?> LOL. ... as Buffet took the Hedgefundies money.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by SweetAeromotion » Fri May 17, 2019 1:32 pm

I have always liked to have a bit more of a small and mid cap tilt than what total market funds offer. Forgive my odd analogy, but for me the current U.S. total market breakdown kind of feels like someone who goes to the gym all the time but constantly skips leg day. Too top heavy. 76% in large caps is slightly too concentrated for my taste. I have set myself a 60/20/20 (LC/MC/SC) long term target now that is enough of a break from the total market breakdown of 76/18/6 for me to justify it. Put in the trade order this afternoon to move my Roth IRA from all FSKAX to FSSNX. This represents ~10-11% of my total portfolio, so is a decent enough tilt. Only a one basis point increase in ER between those funds, so the cost is almost non-existent.

User mileage may vary, of course, etc. etc.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by MikeG62 » Fri May 17, 2019 2:06 pm

PersianRugs wrote:
Wed May 15, 2019 10:37 pm

...Any help in tweaking the percentages would be appreciated.
I agree with the majority of the other posters - probably not going to make as much difference as your % allocation to international and/or fixed income. Having said that, my personal target allocation for my US equities is roughly 50% LC, 25% MC and 25% SC. Like some of the others, I find the asset allocation of the total stock market funds to be too large cap weighted.
Real Knowledge Comes Only From Experience

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by stocknoob4111 » Fri May 17, 2019 2:17 pm

I have 30% of my Portfolio in Small Caps, happy with it. One thing that's a bit tough is that you are "out of sync" with others.. for instance Small Caps have significantly diverged from Large Caps after Feb so when people say we are at all time highs it may be difficult to relate as most are thinking S&P500!

the majority do not hold Mid/Small Caps in a meaningful way (VTSAX/VTSMX is not it as it has a 1:1 performance correlation with the S&P500 in the last 35 years so the holding it for diversification is rather meaningless as Paul Merriman rightly observes in his podcast!).

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by Dialectical Investor » Fri May 17, 2019 3:07 pm

stocknoob4111 wrote:
Fri May 17, 2019 2:17 pm

One thing that's a bit tough is that you are "out of sync" with others..
I don't know, stocknoob. With the seemingly ever-increasing number of SCV tilters, pretty soon it's going to be the market-cap weighters who are out of sync with the market. :wink:

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by Dialectical Investor » Fri May 17, 2019 3:13 pm

Still tweaking it, but here is my proposed litmus test for stock tilting:

Option #1: Invest 100% in your tilt for the equity portion of your portfolio.

Option #2: Invest in a market-cap weighted fund, but pay an extra 0.25% expense ratio, compared to your tilted portfolio.

If you wouldn't choose #1, the tilt you are contemplating is not for you.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by bullmoose85 » Fri May 17, 2019 4:15 pm

Please, please, just put your money in VTWAX and call it a day.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by retire2022 » Fri May 17, 2019 6:02 pm

OP

You're probably going to see more mid cap performance if you do a portfolio visualizer, I have a large position in mid caps and have made money on this so best of luck.

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by stocknoob4111 » Fri May 17, 2019 6:16 pm

Small Caps fell pretty hard today with SP600V falling 1.3% and SP600 falling 1.6%!!! We are almost at late 2017 price levels now so perhaps it's a buying opportunity? Meanwhile SP500 is still not all that distant from it's all time highs so Small Caps may be more attractively priced.. at least some seem to think so:

https://seekingalpha.com/article/426353 ... l-caps-now

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by Benosis » Tue May 21, 2019 6:29 pm

stocknoob4111 wrote:
Fri May 17, 2019 6:16 pm
Small Caps fell pretty hard today with SP600V falling 1.3% and SP600 falling 1.6%!!! We are almost at late 2017 price levels now so perhaps it's a buying opportunity? Meanwhile SP500 is still not all that distant from it's all time highs so Small Caps may be more attractively priced.. at least some seem to think so:

https://seekingalpha.com/article/426353 ... l-caps-now
Looks tempting..

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Re: Tilting very slightly towards small & mid caps. Is this a good idea?

Post by TomCat96 » Tue May 21, 2019 6:58 pm

As someone who is 100% small and midcap tilt, my recommendation is do not tilt.

You are young. But I have no idea what your risk tolerance is, what your growth goals are, what your maturity is in riding the market swings.
By the time you are ready to tilt small and mid caps, you'll just do it.

I don't advise the tilt for the same reason I don't advise the tilt to my friends and family. I don't want them coming back at me and telling me they invested in some alternative deviation from the standard boglehead indexing theories, and lost money. I don't know if you're going to compare portfolios with your friends and ask why did my portfolio drop 3% today when my friends' only dropped 1.5, 1%, etc?

If you don't know what you're investing in yet, if you don't know a lot about investing yet, then without any more information on you, I would advise a retirement fund, a one fund portfolio with an automatic glide path.

If you pick a tilt, you're making a judgment call. And based on what you read on this site, it may well be that that judgment call may have a considerable amount of research behind it. But it's still a judgment call, or a bet even, that's out of character with the standard advice on this site.
Picking these exotic deviations from the norm are for those that have done a bit a research, understand the parameters in which their strategy works (or doesn't work), and understand the risks they are taking (including an expectation of what the outcome should look like)


Without knowing anything more about you, here is your answer. Buy this:
VTTSX

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