Theoretical Portfolio Idea: proportional to AUM of each Vanguard Fund

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GrowthSeeker
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Theoretical Portfolio Idea: proportional to AUM of each Vanguard Fund

Post by GrowthSeeker » Fri Nov 08, 2019 10:28 am

I was recently wondering how many billions of dollars were in a particular Vanguard fund in order to compare that number to the $827 Billion currently invested in Vanguard Total Stock Market when an idea hit me.

What if you started with a portfolio idea to invest in every single Vanguard fund with the amount of each investment proportional to the dollar value of each fund's total net assets? Naturally there would be a huge amount of redundancy, and from this starting point you would simplify greatly. For example, ignore any fund below some arbitrary threshold. You might (or not) chose to ignore institutional shares. I'm thinking you could probably simplify this down to less than a dozen funds, maybe less.

So what would this theoretical portfolio look like in terms of Asset Allocation? In terms of CAGR, Sharpe ratio or other benchmarks? What would a Morningstar style box look like for the stock portion, and for the bond portion? How close would this be to a Three Fund Portfolio? Would this kind of information be of any practical value?
Just because you're paranoid doesn't mean they're NOT out to get you.

snailderby
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Re: Theoretical Portfolio Idea: proportional to AUM of each Vanguard Fund

Post by snailderby » Fri Nov 08, 2019 10:42 am

What would the goal of this exercise be? Here's a list of the top Vanguard ETFs by AUM:

VTI - $129B
VOO - $123B
VEA - $76B
VWO - $64B
VTV - $53B
BND - $46B
VUG - $43B
VIG - $39B
VNQ - $37B
VO - $28B

If you hold all of these ETFs in proportion to their AUM, the Morningstar X-ray breakdown ends up looking almost exactly like a three-fund portfolio consisting of 70% VTI / 20% VXUS / 10% BND.

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Taylor Larimore
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Re: Theoretical Portfolio Idea: proportional to AUM of each Vanguard Fund

Post by Taylor Larimore » Fri Nov 08, 2019 10:54 am

If you hold all of these ETFs in proportion to their AUM, the Morningstar X-ray breakdown ends up looking almost exactly like a three-fund portfolio consisting of 70% VTI / 20% VXUS / 10% BND.
snailderby:

This is a link to The Three-Fund Portfolio and its many benefits.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Simplicity is the master key to financial success. -- We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
"Simplicity is the master key to financial success." -- Jack Bogle

HomeStretch
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Re: Theoretical Portfolio Idea: proportional to AUM of each Vanguard Fund

Post by HomeStretch » Fri Nov 08, 2019 10:58 am

If you do that, isn’t your portfolio just replicating what other investors have, for better or for worse, collectively invested in at Vanguard? I would rather make my own investing decisions.

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JoMoney
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Re: Theoretical Portfolio Idea: proportional to AUM of each Vanguard Fund

Post by JoMoney » Fri Nov 08, 2019 11:41 am

I think you should develop a "hypothesis" about what the results of such a portfolio would be, then you can test your "theory" for using such a seemingly odd portfolio... and you should be willing to do the work looking into it yourself (rather than trying to get someone on the Internet to do it for you). Then you can tell us your results, and if it's of interest, you might get feedback and corrections from people pointing out errors you might have made in your work.

My guess, is the portfolio would average about that of the broad average, but with higher fees, taxable transactions, tracking problems, and other complexities.
"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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GrowthSeeker
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Re: Theoretical Portfolio Idea: proportional to AUM of each Vanguard Fund

Post by GrowthSeeker » Fri Nov 08, 2019 12:26 pm

snailderby wrote:
Fri Nov 08, 2019 10:42 am
What would the goal of this exercise be? Here's a list of the top Vanguard ETFs by AUM:

VTI - $129B
VOO - $123B
VEA - $76B
VWO - $64B
VTV - $53B
BND - $46B
VUG - $43B
VIG - $39B
VNQ - $37B
VO - $28B

If you hold all of these ETFs in proportion to their AUM, the Morningstar X-ray breakdown ends up looking almost exactly like a three-fund portfolio consisting of 70% VTI / 20% VXUS / 10% BND.
Sorry, I wasn't expecting anyone to actually invest their time and effort into this idea, I was thinking more of a theoretical discussion of: I wonder if the averaged wisdom of all those invested dollars turns out to match the collective BH wisdom of a 3FP. And since you went to that effort, it seems like it does.
Just because you're paranoid doesn't mean they're NOT out to get you.

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GrowthSeeker
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Re: Theoretical Portfolio Idea: proportional to AUM of each Vanguard Fund

Post by GrowthSeeker » Fri Nov 08, 2019 12:37 pm

Taylor Larimore wrote:
Fri Nov 08, 2019 10:54 am
This is a link to The Three-Fund Portfolio and its many benefits.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Simplicity is the master key to financial success. -- We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."
Yes, thank you. I'm pretty much in a 3FP except for 2 individual stocks with large gains, and I'm not looking to make a change.
HomeStretch wrote:
Fri Nov 08, 2019 10:58 am
If you do that, isn’t your portfolio just replicating what other investors have, for better or for worse, collectively invested in at Vanguard? Yes, exactly. I would rather make my own investing decisions. Yes, I would too.
I was simply curious if the average of all Vanguard investors was pretty close to the BH philosophy. And I wondered what others would think about that idea.
JoMoney wrote:
Fri Nov 08, 2019 11:41 am
I think you should develop a "hypothesis" about what the results of such a portfolio would be, then you can test your "theory" for using such a seemingly odd portfolio... and you should be willing to do the work looking into it yourself (rather than trying to get someone on the Internet to do it for you). Then you can tell us your results, and if it's of interest, you might get feedback and corrections from people pointing out errors you might have made in your work.

My guess, is the portfolio would average about that of the broad average, but with higher fees, taxable transactions, tracking problems, and other complexities.
There was no intention of offending anyone or trying to make someone do work for me. See above.
Just because you're paranoid doesn't mean they're NOT out to get you.

rkhusky
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Re: Theoretical Portfolio Idea: proportional to AUM of each Vanguard Fund

Post by rkhusky » Fri Nov 08, 2019 2:32 pm

That’s essentially what Total Stock Market is when using US stocks instead of Vanguard funds. The same for Total International for ex-US stocks. It is market cap weighted investing. It’s the collective wisdom of all investors (along with all their different biases, goals, cost functions, get-rich-quick ideas, etc).

snailderby
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Re: Theoretical Portfolio Idea: proportional to AUM of each Vanguard Fund

Post by snailderby » Fri Nov 08, 2019 3:06 pm

GrowthSeeker wrote:
Fri Nov 08, 2019 12:26 pm
Sorry, I wasn't expecting anyone to actually invest their time and effort into this idea, I was thinking more of a theoretical discussion of: I wonder if the averaged wisdom of all those invested dollars turns out to match the collective BH wisdom of a 3FP. And since you went to that effort, it seems like it does.
It's all good. Thanks for posing an interesting thought experiment! :beer

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