Total Market or separate Large, Mid & Small Cap index funds? What say you?

[cadillacfella]

I've analyzed both scenarios via Portfolio Visualizer. The results are unsurprisingly very similar, however, they do vary considerably based on the allocation percentage for the separate funds. What is your preference and why?

[nedsaid]

If you want a simple and diversified stock investment, pick Total Stock Market Index. If you want to tilt your portfolio towards Mid and Small Cap stocks, use the three indexes (Large, Mid, Small indexes). It is just that simple. Most here would choose the Total Stock Market Index.

[CookieDough]

Total Market. It's way simpler and requires less fiddling. Set and forget, and still get very nearly optimized results.

[Doctor Rhythm]

I'm pretty agnostic about which allocation will win during my investing horizon. However, I know I'll feel sad and stupid if I tilt wrong, whereas I won't regret choosing TSM. Also, one fund is easier to manage than three.

[GetSmarter]

I prefer total market, VTI

[retiredjg]

Total market in taxable. 500 index (with or without extended market) in other accounts. I like this because it means the investor does not have to think about wash sales.

[sc9182]

We prefer (keep it simple) VTI;
But I can see reasons for maintaining separate funds - thus, you have ability to Tax-Loss-Harvest, and/or donate, or gift different ETFs/Funds for different purposes. Then again, you may need to be watchful about how close you are tracking your AA (Asset Allocation) close to one VTI ..

Our Two cents ..

[AlohaBill]

Total market is simpler.

[dogagility]

Total market. Simple. No tilt. Diversified.

[cwol19]

Total Market Index Funds

Pros:

Broad Diversification: Includes all cap sizes for reduced risk.
Simplicity: Easier to manage and rebalance.
Lower Costs: Often cheaper due to fewer funds.

Cons:

Lack of Specificity: No targeted exposure to specific cap sizes.


Separate Large, Mid, and Small Cap Funds

Pros:

Targeted Exposure: Adjust allocations based on market outlook.
Potential Higher Returns: Small and mid-caps may outperform large caps.

Cons:

Complexity: Requires more management and rebalancing.
Higher Costs: Can be more expensive due to multiple funds.

My Preference: If you value simplicity and broad coverage, go with a total market fund. If you prefer targeted exposure and are comfortable managing multiple funds, consider separate cap funds.

[FactualFran]

Use a total stock market fund. If you want to deviate from the market weighting of stocks of a total stock market fund, then use at most a few other funds in addition to the total stock market fund to get the weighting you want.

[nisiprius]

My preference is for a total stock market index fund. I also believe that the difference between a total stock market index fund and an S&P 500 index fund isn't important: total stock if you can get it, S&P 500 is good enough if you can't.

I think you should either

a) invest in a total stock market index fund, OR

b) do homework on "factor investing" and "factor tilting," decide on a desired factor exposure, and create a portfolio using factor funds to implement it. This is not usually mean a mid-cap blend fund and a small-cap blend fund. It is much more likely to include a small-cap value fund.

In other words, I don't think it would be particularly good idea to invest ⅓ each in large-cap, mid-cap, and small-cap because that's a sort of random and unscientific way of introducing a small-cap tilt, but no value tilt, and no exposure to other factors (e.g. quality and momentum) that some factor mavens think are important.

c) Now, people sometimes think that they can score a rebalancing bonus by artificially splitting a single asset into pieces, creating an artificial need for rebalancing. Like everything about rebalancing bonuses, this is always controversial.

I'll just state what I believe. I don't believe rebalancing is able to convert random-walk volatility into extra return. And I don't think the departure from random-walk in the real world is large enough or consistent enough to give a large or consistent rebalancing bonus.

But let's suppose you can.

If you are approximating the total market with separate funds--for example, 85% S&P 500 + 10% mid-cap index + 5% mid-cap index--because the resulting portfolio is cap-weighted it will require very little rebalancing so there would be very little opportunity for a rebalancing bonus to materialize. If the hope is to create an artificial need for rebalancing, you need to begin by departing from the total market, which gets us back to decisions about how to do that. Again, to back to question (b). It's not likely that "a large-cap blend index fund, a mid-cap blend index fund, and a small-cap blend index fund" are likely to be favorable for that strategy.

[Alex GR]

Most people prefer TSM but I have VOO, VOE and VBR with most of it in VOO, of course.
VOO and VOE have overlaps (I still don't know if it's good or bad), VBR is small cap value.
For whatever reason I prefer doing it this way, I guess it feels like I'm in control.

[mhc]

TSM all day long.

I love that in retirement our taxable account is VTI and VXUS. It really is simple. Fortunately, the last time we TLH we were able to get everything back into VTI and VXUS. Now that we are no longer adding to the funds, I hope we never have to TLH again and spoil the simplicity.

[wwhan]

My choice is TSM, the total US stock market or SP500 if the VTI is not available in 401K.

[123]

Use TSM as your core. If you want to tilt buy a single additional fund. If you want to tilt by holding 3 different index funds you're just playing and fooling yourself.

[Beensabu]

It depends on whether you have a fixed income and/or exUS stock allocation or not.

[freckles01]

I have mid and a bit of small cap in my RothIRA. It's not a large amount.

This is to avoid wash sales should a TLH opportunity come up in my brokerage account.

I have a small amount of total stock market 401k but have only bought total bonds for the last several years.

Once I retire and if I start converting 401k/IRA into RothIRA, I'll have to figure something out.

[Northern Flicker]

Holding separate funds to create the market portfolio will increase transaction costs very slightly. When a stock moves from one fund to another it has to be sold by one and bought by the other just for you to end up with the same portfolio.

[jjgaucho]

I think Mid-cap is a dog. I prefer VOO + VBR (small cap value). I have my equity holdings split as 66.7% VOO, 20% VEU, 13.3% VBR. everyone has their opinions. I am still 25 years out from retirement and can hold VBR in my tax-deferred.

[welderwannabe]

A benefit to splitting total market up into S&P Index + Extended Market Index is possibly more opportunity to TLH.

In a retirement account, unless you want to tilt, no benefit at all.

[the_wiki]

I think Mid-cap is a dog. I prefer VOO + VBR (small cap value). I have my equity holdings split as 66.7% VOO, 20% VEU, 13.3% VBR. everyone has their opinions. I am still 25 years out from retirement and can hold VBR in my tax-deferred.

Ironically, VBR is nearly 50% mid cap.

[jjgaucho]

OK, I'll give you that. But I prefer to stay in the Vanguard ecosystem, otherwise would prefer AVUV.

[DS03]

I think Mid-cap is a dog. I prefer VOO + VBR (small cap value). I have my equity holdings split as 66.7% VOO, 20% VEU, 13.3% VBR. everyone has their opinions. I am still 25 years out from retirement and can hold VBR in my tax-deferred.

Ironically, VBR is nearly 50% mid cap.

It's really only 32% mid cap per Morningstar.

[the_wiki]

I think Mid-cap is a dog. I prefer VOO + VBR (small cap value). I have my equity holdings split as 66.7% VOO, 20% VEU, 13.3% VBR. everyone has their opinions. I am still 25 years out from retirement and can hold VBR in my tax-deferred.

Ironically, VBR is nearly 50% mid cap.

It's really only 32% mid cap per Morningstar.

Looks like you are correct. Still, 1/3 in mid caps. VIOV is 0% mid.

[FrugalInvestor]

I'm a big fan of simplicity so TSM is it for stocks for me.

P.S. I've also greatly appreciated over my 20+ years of early retirement (on Obamacare) and retirement that I've been able to choose if and when I realize capital gains.

[Taylor Larimore]

Bogleheads:

I agree with nisiprius who wrote:

"My preference is for a total stock market index fund. I also believe that the difference between a total stock market index fund and an S&P 500 index fund isn't important: total stock if you can get it, S&P 500 is good enough if you can't."

Best wishes
Taylor

Jack Bogle's Words of Wisdom: “People should invest in total market stock and bond funds for the long term. Total market indexing is the gold standard. Anything else, like sector investing, is a dilution of that standard.”

[bd7]

Bogleheads:

I agree with nisiprius who wrote:

"My preference is for a total stock market index fund. I also believe that the difference between a total stock market index fund and an S&P 500 index fund isn't important: total stock if you can get it, S&P 500 is good enough if you can't."

Best wishes
Taylor

Jack Bogle's Words of Wisdom: “People should invest in total market stock and bond funds for the long term. Total market indexing is the gold standard. Anything else, like sector investing, is a dilution of that standard.”

So there's the concept of "buying everything" in a TSM allocation and then there's the issue of weighting--how much of each stock to buy. Did Jack Bogle ever say anything specific about using only market-cap weighted versions of TSM or SP500 funds? Obviously the funds he set up were market-cap weighted, so there's that. But since other methods exist, I just wondered if he had anything to say about them.

[FrugalInvestor]

Bogleheads:

I agree with nisiprius who wrote:

"My preference is for a total stock market index fund. I also believe that the difference between a total stock market index fund and an S&P 500 index fund isn't important: total stock if you can get it, S&P 500 is good enough if you can't."

Best wishes
Taylor

Jack Bogle's Words of Wisdom: “People should invest in total market stock and bond funds for the long term. Total market indexing is the gold standard. Anything else, like sector investing, is a dilution of that standard.”

So there's the concept of "buying everything" in a TSM allocation and then there's the issue of weighting--how much of each stock to buy. Did Jack Bogle ever say anything specific about using only market-cap weighted versions of TSM or SP500 funds? Obviously the funds he set up were market-cap weighted, so there's that. But since other methods exist, I just wondered if he had anything to say about them.

Jack said this about that....
https://www.youtube.com/watch?v=-kxCZ41a_U0

[bd7]

Jack said this about that....
https://www.youtube.com/watch?v=-kxCZ41a_U0

Thanks! That's worth watching the whole thing to get the joke at the end...

[Soobs]

Anyone doing VT + VOO in taxable? Cuz uh I know a guy…

[BetaTracker]

I was talking to an advisor at an indexing shop the other day who told me that in taxable accounts they like to use three index funds covering the S&P 500, mid-cap blend and small-cap blend to replicate how much each comprises in a total stock market index fund. While not overweighting one asset class over the other, he sees this as a way for investors needing to withdraw money from their taxable accounts to do so in a little more tax-efficient way. His firm also believes it makes for a slightly more efficient system to harvest taxable gains and losses. He argued such increased flexibility can really add up incrementally over time.

[Circle the Wagons]

I was talking to an advisor at an indexing shop the other day who told me that in taxable accounts they like to use three index funds covering the S&P 500, mid-cap blend and small-cap blend to replicate how much each comprises in a total stock market index fund. While not overweighting one asset class over the other, he sees this as a way for investors needing to withdraw money from their taxable accounts to do so in a little more tax-efficient way. His firm also believes it makes for a slightly more efficient system to harvest taxable gains and losses. He argued such increased flexibility can really add up incrementally over time.

Agree on TLH / TGH but how do you "withdraw more tax efficiently" while maintaining index weights?

[stlpdx421]

Total Market

[Sandtrap]

I've analyzed both scenarios via Portfolio Visualizer. The results are unsurprisingly very similar, however, they do vary considerably based on the allocation percentage for the separate funds. What is your preference and why?

(my preference only):

VBTLX VTSAX (Vanguard Total Stock Market), or equiv. single fund.
Why?

(reading)
TAYLOR LARIMORE ON “SIMPLICTY”
https://www.bogleheads.org/forum/viewt ... p?t=156505

j
(edited: typo corrected above)

[jimkinny]

I've analyzed both scenarios via Portfolio Visualizer. The results are unsurprisingly very similar, however, they do vary considerably based on the allocation percentage for the separate funds. What is your preference and why?

Too bad the past does not predict the future then we would all know what market deviation from a TSM index we should buy.

[Wiggums]

I've analyzed both scenarios via Portfolio Visualizer. The results are unsurprisingly very similar, however, they do vary considerably based on the allocation percentage for the separate funds. What is your preference and why?

(my preference only):

VBTLX (Vanguard Total Stock Market), or equiv. single fund.
Why?

(reading)
TAYLOR LARIMORE ON “SIMPLICTY”
https://www.bogleheads.org/forum/viewt ... p?t=156505

j

Did you mean VTSAX? (Vanguard Total Stock Market Index Fund Admiral Shares)

VBTLX IS Vanguard Total Bond Market Index Fund Admiral Shares

[Sandtrap]

I've analyzed both scenarios via Portfolio Visualizer. The results are unsurprisingly very similar, however, they do vary considerably based on the allocation percentage for the separate funds. What is your preference and why?

(my preference only):

VBTLX ( VTSAX Vanguard Total Stock Market), or equiv. single fund.
Why?

(reading)
TAYLOR LARIMORE ON “SIMPLICTY”
https://www.bogleheads.org/forum/viewt ... p?t=156505

j

Did you mean VTSAX? (Vanguard Total Stock Market Index Fund Admiral Shares)

VBTLX IS Vanguard Total Bond Market Index Fund Admiral Shares

Good catch. Typo. Brain Fart.
Post corrected.
Thanks!
j

[RadAudit]

Of the two options, I'd choose Total Market. The choice would be primarily for simplicity.

Now, I'm 77 years old so my perspective may be a little different. But now days, I choose to invest in a Moderate Growth mutual fund. (Constant 60/40 asset allocation.) I believe it is a combination of a Total World Stock fund and a Total Bond Fund. It's automatically rebalanced and it is distributed worldwide in both areas. Those funds are in IRAs. Why? Simplicity.

[ruralavalon]

I've analyzed both scenarios via Portfolio Visualizer. The results are unsurprisingly very similar, however, they do vary considerably based on the allocation percentage for the separate funds. What is your preference and why?

For simplicity my personal preference is a total stock market index fund if available. If not available in a 401k then in my opinion a S&P 500 index fund is more than good enough by itself for investing in U.S. stocks.

[Northern Flicker]

The default case should be to hold the total market portfolio, which is best held as a single total market index fund if possible. When that is not feasible, holding it through 2 (or sometimes 3) funds in proportion to approximate the market portfolio is fine.

The primary alternatives to holding the market portfolio are factor tilts and active management.

[nisiprius]

...So there's the concept of "buying everything" in a TSM allocation and then there's the issue of weighting--how much of each stock to buy. Did Jack Bogle ever say anything specific about using only market-cap weighted versions of TSM or SP500 funds? Obviously the funds he set up were market-cap weighted, so there's that. But since other methods exist, I just wondered if he had anything to say about them...

Yes, he did, in The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns.

In recent years, something new has been added to the mix. There are now financial entrepreneurs who believe, I’m sure, sincerely (if with a heavy dollop of self-interest), that they can create indexes that will beat the market. Interesting! They have developed new methods of weighting portfolio holdings that they vow will outperform the traditional market-cap-weighted portfolio that represents the holdings of investors as a group.

This new breed of indexers—not, in fact, indexers, but active strategists—focuses on weighting portfolios by so-called fundamental factors. Rather than weighting by market cap, they use a combination of factors such as corporate revenues, cash flows, profits, or dividends (for example, the portfolio may be weighted by the dollar amount of dividends distributed by each corporation, rather than the dollar amount of its market capitalization)....

I recommend skepticism.... Never think you know more than the market. Nobody does. We never know when that reversion to the mean will come to the various sectors of the stock market. But we do know that such changes in style leadership have invariably occurred in the past.... Before we too easily accept that fundamental indexing— relying on style tilts toward dividends, value, or small- ness—is the new paradigm, we need a longer sense of history....

Don't Take My Word For It

...listen to William Sharpe, professor of finance at Stanford and Nobel Laureate in Economics: “It is quite remarkable that people think that somehow a scheme that weights stocks differently than capitalization can dominate a capitalization-weighted index. ... New paradigms come and go. Betting against the market (and spend- ing a considerable amount of money to do so) is indeed likely to be a hazardous undertaking.”

...Finally, consider this affirmation of classic indexing from Wharton School Professor Jeremy J. Siegel, author of Stocks for the Long Run and adviser to WisdomTree Investments, the promoter of the dividend-driven fundamental model. “It can be shown that maximum diversification is achieved by holding each stock in proportion to its value to the entire market (italics added). . . . Hindsight plays tricks on our minds ... often distorts the past and encourages us to play hunches and outguess other investors, who in turn are playing the same game. For most of us, trying to beat the market leads to disastrous results ... our actions lead to much lower returns than can be achieved by just staying in the market . . . matching the market year after year with index funds (such as) the Vanguard 500 Portfolio . . . and Vanguard’s Total Stock Market Index Fund.” (This quotation is from the first edition of Dr. Siegel’s book in 1994. I understand that he has every right to change his mind.)

[gavinsiu]

I would just go with Total Market since you are just replicating 1 fund with 3 funds, creating additional complexity for no benefits. There is another approach nickname slice and dice. Usually the portfolio is split between small and large, so you may have a S&P 500 pair with Russell 2000. The idea is that small and large cap have low correlation allow you to gain free lunch. Usually there is a value tilt as well. However, both small and value fund hasn't done well in the past 20 years or so.

Back in the 90's I wanted to do slice and dice but didn't have enough asset, I ended up with a 2 fund portfolio total stock/total int. I plan to stick with this approach but with some bonds.

[heyyou]

Having done the fractional path thinking it would perform better, now I can see that Total Market's large caps did about the same without the time I wasted trying to greedily optimize. At some point deep in retirement, the complexity of different funds spread across taxable, tIRA, and RIRA, is no longer welcome. There was uncertainty about portfolio longevity when I first retired, that is now long gone so the simplicity of TSM is far more attractive these days.