3 Fund Portfolio to 5 Fund? Add mid and small cap?

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DarrenJF
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3 Fund Portfolio to 5 Fund? Add mid and small cap?

Post by DarrenJF »

Hi. I have a basic 3 fund portfolio of VTSAX, VTIAX and VBTLX. While I’m slightly overweight in VTSAX, it’s performed pretty well. My question revolves around thoughts on adding a mid and or small cap fund rather than continuing to add to VTSAX, which has had a nice run up thanks to its high % of mag 7 exposure. Of course, I know I’ll need to increase VBTLX holding, if I were to add small / mid (to make sure I’m balanced well). Thanks in advance for any advice.
muffins14
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Re: 3 Fund Portfolio to 5 Fund? Add mid and small cap?

Post by muffins14 »

What is your goal long term, exactly?

What do you think will change in your returns due to your proposed change?
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bombcar
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Re: 3 Fund Portfolio to 5 Fund? Add mid and small cap?

Post by bombcar »

VTSAX already contains small and mid cap.

I would suggest you have an IPS and an asset allocation you want, and rebalance to it regularly. With a VTSAX runup, that would sell VTSAX and buy the others, forcing you to sell winners and buy "under performers" to keep your allocation.

Trying to "tune it" is a form of market timing unless you fully redo your asset allocation AND have a reason to do so that isn't "I feel it's run up".

(As an aside, the whole point of the 3fund is to set it, rebalance, forget it. If you want a more complicated allocation you can do so, but do realize that it's more for "fun" than any real knowable results.)

You could take 5% of your total portfolio and put it in a brokerage and play with it, if it would make you feel better. But if it would tempt you to gamble the whole thing, don't do it - buy a boat instead or something to distract you.
Last edited by bombcar on Mon Jun 10, 2024 8:57 am, edited 1 time in total.
dbr
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Re: 3 Fund Portfolio to 5 Fund? Add mid and small cap?

Post by dbr »

You have to decide why you want to abandon the guideline of invest in the total market and leave it alone.

Do you think there is timing to prefer some stocks over others? When is that going to happen and when is it going to stop? Why do you think you know these things? Or is the plan that you think there is a benefit to tilting to smaller cap stocks for good?
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DarrenJF
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Re: 3 Fund Portfolio to 5 Fund? Add mid and small cap?

Post by DarrenJF »

muffins14 wrote: Mon Jun 10, 2024 8:41 am What is your goal long term, exactly?

What do you think will change in your returns due to your proposed change?
VTSAX IS 70+ % large cap. My thought was that large cap has out performed while the opposite is true for mid and small. I know VTSAX has mid and small but the exposure is less that a specific mid and small cap fund.
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DarrenJF
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Re: 3 Fund Portfolio to 5 Fund? Add mid and small cap?

Post by DarrenJF »

dbr wrote: Mon Jun 10, 2024 8:44 am You have to decide why you want to abandon the guideline of invest in the total market and leave it alone.

Do you think there is timing to prefer some stocks over others? When is that going to happen and when is it going to stop? Why do you think you know these things? Or is the plan that you think there is a benefit to tilting to smaller cap stocks for good?
I’m not abandoning the VTSAX position at all. VTSAX IS 70+ % large cap. My thought was that large cap has out performed while the opposite is true for mid and small. I know VTSAX has mid and small but the exposure is less that a specific mid and small cap fund.
KlangFool
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Re: 3 Fund Portfolio to 5 Fund? Add mid and small cap?

Post by KlangFool »

OP,

1) What is your asset allocation?

2) In my case, I have 10% SmallCapValue and 10% Intermediate Term Treasury as part of mini Larry aka Barbell Investment Strategy

https://www.investopedia.com/articles/i ... rategy.asp

3) SmallCapValue can be under-performed for a very long time (15+ years). Are you convinced enough to hold it for 20+ years?

4) Why do Small and Mid cap? You should go into SmallCapValue if you want to maximize your risk.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
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retired@50
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Re: 3 Fund Portfolio to 5 Fund? Add mid and small cap?

Post by retired@50 »

DarrenJF wrote: Mon Jun 10, 2024 6:19 pm
dbr wrote: Mon Jun 10, 2024 8:44 am You have to decide why you want to abandon the guideline of invest in the total market and leave it alone.

Do you think there is timing to prefer some stocks over others? When is that going to happen and when is it going to stop? Why do you think you know these things? Or is the plan that you think there is a benefit to tilting to smaller cap stocks for good?
I’m not abandoning the VTSAX position at all. VTSAX IS 70+ % large cap. My thought was that large cap has out performed while the opposite is true for mid and small. I know VTSAX has mid and small but the exposure is less that a specific mid and small cap fund.
One way to bump up small cap exposure is to use VTMSX at Vanguard. It's a tax managed small cap fund that follows the S&P 600 and would be suitable in a taxable account. It does have a $10k minimum initial investment.

While I own this fund, please don't consider this a recommendation.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
Doctor Rhythm
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Re: 3 Fund Portfolio to 5 Fund? Add mid and small cap?

Post by Doctor Rhythm »

As you probably guessed, you're asking a tough crowd about tilting towards small/mid cap, which isn't popular on this forum -- though certainly something discussed and occasionally advocated (especially SCV). I wouldn't do this personally, but if you are considering it, I'd say to remember:

-- That VTSAX being 70%+ large cap is mostly just a matter of arbitrary definition. Raise the imaginary threshold to be called "large" and the large cap allocation will drop.
-- It's easier to stay the course with a simpler, non-tilted portfolio, whereas tilts with separate funds will inevitably create a temptation to change course and time the market.
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nisiprius
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Re: 3 Fund Portfolio to 5 Fund? Add mid and small cap?

Post by nisiprius »

Well, broadly speaking we can identify three strategies a stock investor could follow.

1) Hold a portfolio similar to the total market, and stay the course with no changes no matter what. That's the mainstream Bogleheads' investment philosophy.

2) Depart from the total market and choose to hold e.g. more small-cap value than the total market; decide what percentage you want to put into small-cap value; and hold it steadily at that percentage forever. That means you rebalance periodically to keep it at the percentage, but apart from you do nothing. That's what what "factor investors" do (more or less, with variations).

3) Try to predict how different categories of stocks will perform in future, based on what they've been doing in the past, and try to keep adjusting your portfolio so that you always try to have more of your portfolio in what is going to do better going forward. That's really what you're talking about. Sometimes that's called "tactical asset allocation." It's a gentle, milder form of "market timing." It seems obvious that anyone with a little gumption ought to be able to do better by acting, rather than justing there taking it. It seems as if it must better to pay attention to valuations than to ignore them. The general view in this forum (and my own view) is that even though it seems obvious, it's isn't so--and you really are better off--for many reasons--choosing an allocation and sticking to it.
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