Expanding 3 fund portfolio to add value and emerging market ETF (VWO, VOOV) good idea?

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ldd4774
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Expanding 3 fund portfolio to add value and emerging market ETF (VWO, VOOV) good idea?

Post by ldd4774 »

Hi everyone, I have been trying to become more active investor lately and researching and following financial news.

Late 40's, retirement more or less on track and currently invested in 70% Total US Market Index ETF, 20% Total Bond ETF and 10% International Total Market Index ETF. I see value stocks and emerging markets seem to be on the rise.

Would it be wise to add 5% from Total US Marketto Small cap Value S/P 500 (VOOV) or 5% to Emerging Market Funds (VWO) from the International Total World Market?

Also, for the 20% total bond allocation, does anyone have suggestion to diversify that fund to gain a little more interest while preserving capital.

Just curious, what others are doing and if people are tweaking the 3 funds or staying the course. Thanks!
theorist
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Re: Expanding 3 fund portfolio to add value and emerging market ETF (VWO, VOOV) good idea?

Post by theorist »

As a general warning, following the financial news and becoming more active in investing can — in contrast with many other activities — actually be rather harmful to your results!

That said, it is reasonable — independent of recent news — to consider what the allocation to emerging markets and small value stocks should be. The small and value factors have historically outperformed (though you can see active debate about this in various threads here), and emerging markets both seem “cheap” (based on P/E ratios) and host some of the world’s fastest growing economies (though again, debatable whether that translates into stock market returns...).

My own conclusion from reading has been to both do a mild small value tilt, and a mild emerging markets tilt. So on top of VTSAX (which already holds market cap in small and mid value), I allocate 10% of my stocks to small value and 5% to midcap value. And on top of VTIAX (which holds a bit over 20% in emerging markets), I allocate another 5% of my total holdings to emerging markets. (Plus in my small fraction of play money, I hold some Ali Baba and HDFC bank stock.) As a result emerging markets are something like 35% of my international holdings, instead of just over 20%.

Good luck!
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ruralavalon
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Re: Expanding 3 fund portfolio to add value and emerging market ETF (VWO, VOOV) good idea?

Post by ruralavalon »

ldd4774 wrote: Fri Nov 20, 2020 12:11 pm Hi everyone, I have been trying to become more active investor lately and researching and following financial news.

Late 40's, retirement more or less on track and currently invested in 70% Total US Market Index ETF, 20% Total Bond ETF and 10% International Total Market Index ETF. I see value stocks and emerging markets seem to be on the rise.

Would it be wise to add 5% from Total US Marketto Small cap Value S/P 500 (VOOV) or 5% to Emerging Market Funds (VWO) from the International Total World Market?

Also, for the 20% total bond allocation, does anyone have suggestion to diversify that fund to gain a little more interest while preserving capital.

Just curious, what others are doing and if people are tweaking the 3 funds or staying the course. Thanks!
Don't base any asset allocation changes on recent past performance (e.g. "seem to be on the rise").

Asset allocations of just 5% will probably not move the needle in any significant way.

Invest for the long-term. Make those small-cap value and emerging markets tilts only if you plan to stay with those tilts for decades, in good or bad times. Invest for the long-term.

For bonds we use Vanguard Intermediate-Term Bond Index Fund (VBILX), the ETF share class is Vanguard Intermediate-Term Bond ETF (BIV).
Last edited by ruralavalon on Fri Nov 20, 2020 12:35 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Brianmcg321
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Re: Expanding 3 fund portfolio to add value and emerging market ETF (VWO, VOOV) good idea?

Post by Brianmcg321 »

Why take something simple and make it more complicated?
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
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ldd4774
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Re: Expanding 3 fund portfolio to add value and emerging market ETF (VWO, VOOV) good idea?

Post by ldd4774 »

ruralavalon wrote: Fri Nov 20, 2020 12:30 pmFor bonds we use Vanguard Intermediate-Term Bond Index Fund (VBILX), the ETF share class is Vanguard Intermediate-Term Bond ETF (BIV).
Thanks for input. Do you replace your total bond completely with VBILX or just a portion. Thanks
Last edited by ldd4774 on Fri Nov 20, 2020 1:07 pm, edited 2 times in total.
Topic Author
ldd4774
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Re: Expanding 3 fund portfolio to add value and emerging market ETF (VWO, VOOV) good idea?

Post by ldd4774 »

theorist wrote: Fri Nov 20, 2020 12:19 pm As a general warning, following the financial news and becoming more active in investing can — in contrast with many other activities — actually be rather harmful to your results!

That said, it is reasonable — independent of recent news — to consider what the allocation to emerging markets and small value stocks should be. The small and value factors have historically outperformed (though you can see active debate about this in various threads here), and emerging markets both seem “cheap” (based on P/E ratios) and host some of the world’s fastest growing economies (though again, debatable whether that translates into stock market returns...).

My own conclusion from reading has been to both do a mild small value tilt, and a mild emerging markets tilt. So on top of VTSAX (which already holds market cap in small and mid value), I allocate 10% of my stocks to small value and 5% to midcap value. And on top of VTIAX (which holds a bit over 20% in emerging markets), I allocate another 5% of my total holdings to emerging markets. (Plus in my small fraction of play money, I hold some Ali Baba and HDFC bank stock.) As a result emerging markets are something like 35% of my international holdings, instead of just over 20%.

Good luck!
Thanks for input. I like your suggestions and will research it!
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Taylor Larimore
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Answer to questions

Post by Taylor Larimore »

ldd4774 wrote: Fri Nov 20, 2020 12:11 pm Hi everyone, I have been trying to become more active investor lately and researching and following financial news.

Late 40's, retirement more or less on track and currently invested in 70% Total US Market Index ETF, 20% Total Bond ETF and 10% International Total Market Index ETF. I see value stocks and emerging markets seem to be on the rise.

Would it be wise to add 5% from Total US Market to Small cap Value S/P 500 (VOOV) or 5% to Emerging Market Funds (VWO) from the International Total World Market?

Also, for the 20% total bond allocation, does anyone have suggestion to diversify that fund to gain a little more interest while preserving capital.

Just curious, what others are doing and if people are tweaking the 3 funds or staying the course. Thanks!
ldd4774:

Answers in blue:
I have been trying to become more active investor lately and researching and following financial news.
Becoming a more active investor is very dangerous. Jack Bogle wrote: "Don't do something. Just stand there." When I started investing in 1950 the S&P stocks were valued at 25. Today they are valued about 3,500 before dividends. Lesson learned: I should have just "stand there"
I see value stocks and emerging markets seem to be on the rise.
Nearly everyone agrees that chasing performance is one of the worst things an investor can do.
Also, for the 20% total bond allocation, does anyone have suggestion to diversify that fund to gain a little more interest while preserving capital.
Your Total Bond Market Index ETF is the most diversified U.S. bond fund. It is also the largest bond fund in the world for good reasons. "More money has been lost chasing yield than has been lost at the point of a gun." Stay the course.
Would it be wise to add 5% from Total US Market to Small cap Value S/P 500 (VOOV) or 5% to Emerging Market Funds (VWO) from the International Total World Market?

The market value of Small Cap Value stocks are ALREADY in Total Market Index Funds. Investors who chased performance and added SCV stocks 10 years ago are far behind investors who simply stuck with their total market index fund. Vanguard Total International Stock fund ALREADY owns emerging market stocks. We are all tempted to add funds or ETFs that we think will outperform. Don't do it.

Please read my "Simplicity" link below.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Stay the Course. No matter what happens, stick to your program. I've said "Stay the course" a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you."
"Simplicity is the master key to financial success." -- Jack Bogle
UpperNwGuy
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Re: Expanding 3 fund portfolio to add value and emerging market ETF (VWO, VOOV) good idea?

Post by UpperNwGuy »

ldd4774 wrote: Fri Nov 20, 2020 12:11 pm Just curious, what others are doing and if people are tweaking the 3 funds or staying the course. Thanks!
I recommend you stay the course and avoid tweaking. But if you feel a compulsion to tweak something, play with the bond side of your portfolio. You can do less long-term harm there.
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ruralavalon
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Re: Expanding 3 fund portfolio to add value and emerging market ETF (VWO, VOOV) good idea?

Post by ruralavalon »

ldd4774 wrote: Fri Nov 20, 2020 1:04 pm
ruralavalon wrote: Fri Nov 20, 2020 12:30 pmFor bonds we use Vanguard Intermediate-Term Bond Index Fund (VBILX), the ETF share class is Vanguard Intermediate-Term Bond ETF (BIV).
Thanks for input. Do you replace your total bond completely with VBILX or just a portion. Thanks
We do not have any total bond market fund. Our only fixed income investment is Vanguard Intermediate-Term Bond Index Fund (VBILX), and has been our only fixed income investment for many years.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
ldd4774
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Joined: Wed May 08, 2019 5:24 pm

Re: Expanding 3 fund portfolio to add value and emerging market ETF (VWO, VOOV) good idea?

Post by ldd4774 »

Thanks everyone for all of your advice. Leaning towards staying the course as everyone mentioned. It's good to know the 3 funds have good broad exposure to all the sectors. Thanks!
Bama12
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Re: Expanding 3 fund portfolio to add value and emerging market ETF (VWO, VOOV) good idea?

Post by Bama12 »

I have emerging, large value and small value 10% each.
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