On the fence of adding small cap value

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
PlymouthBogle
Posts: 4
Joined: Tue May 23, 2023 10:22 am

On the fence of adding small cap value

Post by PlymouthBogle »

First time poster

I've been on the fence about Adding a tilt toward small cap value. As of the moment I am very happy with my asset allocation. I just started getting into the low cost index fund investing space about a year and half ago. As of the moment I'm 80/20 US/Intl with zero bonds (yes i'm aware of the risk) I'm also 28 as well. My 401k has ample amount of Fidelity funds to allow me to mirror that AA across accounts using FXAIX/FTIHX. I've been thinking of adding AVUV at about 25% to be at 55% FXAIX, 25%AVUV and 20% FTIHX. I would hope it would add about 0.5-1.0 increase in returns over 30+ years as well as some added diversification.
My concerns are though, I would only want to add AVUV and not any of Fidelitys small cap value funds. Which would take away from my current hands off automated investing as I would have to manually by that ETF in my Roth. I think automation allows for a very powerful hands off approach that can prevent too much checking of my portfolio. Which leads to my next point....
Tilting toward Small cap value, I don't know how easy it would be to handle potential decades of small cap value under performances.Which could lead to tinkering with AA which would decrease any potential gains of SCV.
I already tend to compare my portfolio to the S&P 500. And tilting toward SCV could mean underperforming the market.
So, I'm wondering if anyone Tilts towards Small cap value
or does the simplicity of automation and the potential years of under performance make people prefer more simple approaches?

Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.

Thanks
Josh
steadyosmosis
Posts: 975
Joined: Mon Dec 26, 2022 11:45 am

Re: On the fence of adding small cap value

Post by steadyosmosis »

PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am First time poster

I've been on the fence about Adding a tilt toward small cap value. As of the moment I am very happy with my asset allocation. I just started getting into the low cost index fund investing space about a year and half ago. As of the moment I'm 80/20 US/Intl with zero bonds (yes i'm aware of the risk) I'm also 28 as well. My 401k has ample amount of Fidelity funds to allow me to mirror that AA across accounts using FXAIX/FTIHX. I've been thinking of adding AVUV at about 25% to be at 55% FXAIX, 25%AVUV and 20% FTIHX. I would hope it would add about 0.5-1.0 increase in returns over 30+ years as well as some added diversification.
My concerns are though, I would only want to add AVUV and not any of Fidelitys small cap value funds. Which would take away from my current hands off automated investing as I would have to manually by that ETF in my Roth. I think automation allows for a very powerful hands off approach that can prevent too much checking of my portfolio. Which leads to my next point....
Tilting toward Small cap value, I don't know how easy it would be to handle potential decades of small cap value under performances.Which could lead to tinkering with AA which would decrease any potential gains of SCV.
I already tend to compare my portfolio to the S&P 500. And tilting toward SCV could mean underperforming the market.
So, I'm wondering if anyone Tilts towards Small cap value
or does the simplicity of automation and the potential years of under performance make people prefer more simple approaches?

Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.

Thanks
Josh
I used to hold a tilt to Small Value ... notice I said 'used to'.
No significant difference detected.
Me? Early-retired years ago, still not yet age 59.5, delaying SS until age 70.
More info in my signature line below.
Age<59.5. Early-retired. AA ~55/45. Taxable account, Roth IRA, HSA...all are 100% equities. 100% of fixed income is in tIRA. I spend from taxable and re-balance in tIRA.
User avatar
CommitmentDevice
Posts: 274
Joined: Tue Apr 02, 2019 3:25 am

Re: On the fence of adding small cap value

Post by CommitmentDevice »

There are good reasons to tilt or not to tilt.

Personally, I don't tilt because of a strong preference for simplicity. To me, tilting opens the door to all sorts of unanswerable questions like "How much to tilt?," "In which direction should I tilt?," and "Should I reevaluate my past decisions based upon the newest flavor of the month?"

I don't trust my ability to come up with answers to those questions that will probably beat the market, and I couldn't be bothered to put in the work.
backpacker61
Posts: 1613
Joined: Wed May 20, 2020 6:36 am

Re: On the fence of adding small cap value

Post by backpacker61 »

I tilt to S/Mid Cap; there is an index-tracking Russell 2500 fund among the choices in my employer's plan, so I can automate it. If it's not automatable, I don't fool with it in the employer plan.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: On the fence of adding small cap value

Post by Marseille07 »

PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am Tilting toward Small cap value, I don't know how easy it would be to handle potential decades of small cap value under performances.Which could lead to tinkering with AA which would decrease any potential gains of SCV.
I already tend to compare my portfolio to the S&P 500. And tilting toward SCV could mean underperforming the market.
So, I'm wondering if anyone Tilts towards Small cap value
Some people do because they think SCV continues to outperform US TSM. Imo that's not a good idea; it's better to just hold US TSM or S&P500.
Topic Author
PlymouthBogle
Posts: 4
Joined: Tue May 23, 2023 10:22 am

Re: On the fence of adding small cap value

Post by PlymouthBogle »

steadyosmosis wrote: Mon Jun 05, 2023 11:53 am
PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am First time poster

I've been on the fence about Adding a tilt toward small cap value. As of the moment I am very happy with my asset allocation. I just started getting into the low cost index fund investing space about a year and half ago. As of the moment I'm 80/20 US/Intl with zero bonds (yes i'm aware of the risk) I'm also 28 as well. My 401k has ample amount of Fidelity funds to allow me to mirror that AA across accounts using FXAIX/FTIHX. I've been thinking of adding AVUV at about 25% to be at 55% FXAIX, 25%AVUV and 20% FTIHX. I would hope it would add about 0.5-1.0 increase in returns over 30+ years as well as some added diversification.
My concerns are though, I would only want to add AVUV and not any of Fidelitys small cap value funds. Which would take away from my current hands off automated investing as I would have to manually by that ETF in my Roth. I think automation allows for a very powerful hands off approach that can prevent too much checking of my portfolio. Which leads to my next point....
Tilting toward Small cap value, I don't know how easy it would be to handle potential decades of small cap value under performances.Which could lead to tinkering with AA which would decrease any potential gains of SCV.
I already tend to compare my portfolio to the S&P 500. And tilting toward SCV could mean underperforming the market.
So, I'm wondering if anyone Tilts towards Small cap value
or does the simplicity of automation and the potential years of under performance make people prefer more simple approaches?

Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.

Thanks
Josh
I used to hold a tilt to Small Value ... notice I said 'used to'.
No significant difference detected.
Me? Early-retired years ago, still not yet age 59.5, delaying SS until age 70.
More info in my signature line below.
Yeah knowing my personality I think it’s wise to just stick with what I have.
livesoft
Posts: 86076
Joined: Thu Mar 01, 2007 7:00 pm

Re: On the fence of adding small cap value

Post by livesoft »

I have a hefty allocation to small-cap value. I own VBR and AVUV. For the VBR, I last bought shares in late Spring 2009. It looks like that VTI (total stock market) has outperformed VBR at the average rate of 2% a year since then. Or put it another way: VBR has underperformed VTI by about 2% a year over more than the decade. Thank goodness I own more shares of VTI :)!

You asked how do I deal with that? Easy: VBR popped a lot at the beginning, so I decided that I would never ever sell it. Instead, I started donating shares to charity with the intention of donating a mid-6-figure dollar amount over the years. I no longer care what VBR does because even though I own it, I consider it dead money that just gives me a tax break.

So then I went on to AVUV which has outperformed VTI since I have owned it. Instead of buy-and-hold, I use my RBD strategy with AVUV in a tax-advantaged account. So far that has outperformed the buy-and-hold of AVUV handily, so I have plenty of "room" to start underperforming with it and still outperform VTI. I consider this exercise with AVUV to be a better brain-sharpening tool than Wordle, Sudoku, and crossword puzzles, so I get both expressive and emotional benefits (see Statman, M.) for my endeavors. That is, it is fun to do market timing with AVUV!

I am retired with most of my portfolio in VTI, VEU, BND and some tax-loss harvesting partners. The rest is in AVUV, VBR, VSS, and DGS.

I don't see how any of this helps you (the OP) though! IYOI!! (Invest your own investments!)
Wiki This signature message sponsored by sscritic: Learn to fish.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: On the fence of adding small cap value

Post by secondopinion »

Marseille07 wrote: Mon Jun 05, 2023 12:53 pm
PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am Tilting toward Small cap value, I don't know how easy it would be to handle potential decades of small cap value under performances.Which could lead to tinkering with AA which would decrease any potential gains of SCV.
I already tend to compare my portfolio to the S&P 500. And tilting toward SCV could mean underperforming the market.
So, I'm wondering if anyone Tilts towards Small cap value
Some people do because they think SCV continues to outperform US TSM. Imo that's not a good idea; it's better to just hold US TSM or S&P500.
Right it is a bad idea to expect outperformance. But if the risk profile is beneficial for the investor, then what is wrong with the tilt?
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: On the fence of adding small cap value

Post by Marseille07 »

secondopinion wrote: Mon Jun 05, 2023 1:11 pm Right it is a bad idea to expect outperformance. But if the risk profile is beneficial for the investor, then what is wrong with the tilt?
The risk profiles aren't all that different: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Maybe slightly riskier but not by much, and you certainly don't feel it if you only allocate something like 20% of the portfolio to SCV.
User avatar
Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Re: On the fence of adding small cap value

Post by Taylor Larimore »

PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am First time poster

I've been on the fence about Adding a tilt toward small cap value. As of the moment I am very happy with my asset allocation. I just started getting into the low cost index fund investing space about a year and half ago. As of the moment I'm 80/20 US/Intl with zero bonds (yes i'm aware of the risk) I'm also 28 as well. My 401k has ample amount of Fidelity funds to allow me to mirror that AA across accounts using FXAIX/FTIHX. I've been thinking of adding AVUV at about 25% to be at 55% FXAIX, 25%AVUV and 20% FTIHX. I would hope it would add about 0.5-1.0 increase in returns over 30+ years as well as some added diversification.
My concerns are though, I would only want to add AVUV and not any of Fidelitys small cap value funds. Which would take away from my current hands off automated investing as I would have to manually by that ETF in my Roth. I think automation allows for a very powerful hands off approach that can prevent too much checking of my portfolio. Which leads to my next point....
Tilting toward Small cap value, I don't know how easy it would be to handle potential decades of small cap value under performances.Which could lead to tinkering with AA which would decrease any potential gains of SCV.
I already tend to compare my portfolio to the S&P 500. And tilting toward SCV could mean underperforming the market.
So, I'm wondering if anyone Tilts towards Small cap value
or does the simplicity of automation and the potential years of under performance make people prefer more simple approaches?

Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.

Thanks
Josh
Josh:

Welcome to the Bogleheads Forum!

A Total Market Index Fund holds the market weight in small cap value stocks. In my opinion, there is no need to add small cap value stocks with more complexity, higher cost, and poor tax-efficiency.

Read what experts say here.

Yes, I have been retired for many years with The Three-Fund Portfolio.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Don't look for the needle in the haystack; just buy the haystack."
"Simplicity is the master key to financial success." -- Jack Bogle
3funder
Posts: 1814
Joined: Sun Oct 15, 2017 9:35 pm

Re: On the fence of adding small cap value

Post by 3funder »

CommitmentDevice wrote: Mon Jun 05, 2023 12:07 pm There are good reasons to tilt or not to tilt.

Personally, I don't tilt because of a strong preference for simplicity. To me, tilting opens the door to all sorts of unanswerable questions like "How much to tilt?," "In which direction should I tilt?," and "Should I reevaluate my past decisions based upon the newest flavor of the month?"

I don't trust my ability to come up with answers to those questions that will probably beat the market, and I couldn't be bothered to put in the work.
+1
Global stocks, US bonds, and time.
User avatar
nisiprius
Advisory Board
Posts: 52212
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: On the fence of adding small cap value

Post by nisiprius »

PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am...Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.

Thanks
Josh
I am currently retired and we have more than three funds, because we have a short-term bond fund and a TIPS bond fund. And we have two stock funds, the Vanguard Total Stock Market Index Fund and the Vanguard Total International Stock Index Fund. But they are both total market funds, with no tilt.

In other words, no, I don't have a small-cap value fund and I don't tilt toward small-cap value.

The premise of "0.5%-1% increase in returns" is particularly odd in retirement, because it's at best an average. And because virtually all people, even in the factor camp, agree that the outperformance by small-cap value has come in short bursts with long intervals in between. If you believe that small-cap value will continue to create bursts of outperformance every few decades, and that real-world funds will capture it, that would be an argument for tilting when you are young and reasonably certain to catch the next burst within your investment lifetime. But it doesn't seem like something you should be doing in retirement.

Of course there's a (market timing, or if you prefer mean reversion) argument that since it has been a long time since the last big burst of outperformance (around 2000-2003), we are "due" for another one. But then again maybe we already got it in 2022.

Second, of course, the statement that you are adding diversification by concentrating more of your money into small-cap value stocks is endlessly debatable and debated. It can only be discussed if you are willing to commit carefully to exactly what you mean by "diversification" and exactly what specific benefits you expect to gain from it.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: On the fence of adding small cap value

Post by secondopinion »

Marseille07 wrote: Mon Jun 05, 2023 1:17 pm
secondopinion wrote: Mon Jun 05, 2023 1:11 pm Right it is a bad idea to expect outperformance. But if the risk profile is beneficial for the investor, then what is wrong with the tilt?
The risk profiles aren't all that different: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Maybe slightly riskier but not by much, and you certainly don't feel it if you only allocate something like 20% of the portfolio to SCV.
A negative skew and a high kurtosis hides the true nature of the potential volatility.
Last edited by secondopinion on Mon Jun 05, 2023 1:59 pm, edited 1 time in total.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: On the fence of adding small cap value

Post by Marseille07 »

secondopinion wrote: Mon Jun 05, 2023 1:56 pm A negative skew and a high kurtosis hides the true nature of the potential volatility.
I just find this risk profile argument strange, because it is all about the returns at the end of the day.

If return expectations aren't there, then a case to be made is to hold something less risky, not more. In other words, holding something riskier necessarily requires superior return expectations.
User avatar
Beensabu
Posts: 5657
Joined: Sun Aug 14, 2016 3:22 pm

Re: On the fence of adding small cap value

Post by Beensabu »

You're on the fence; it would be inconvenient and introduce potential for behavioral error; and you are happy with your current asset allocation.

Sounds like an easy decision.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
abc132
Posts: 2435
Joined: Thu Oct 18, 2018 1:11 am

Re: On the fence of adding small cap value

Post by abc132 »

My 2023 YTD returns are reduced by about 1% because around 10% of my portfolio is in small and/or value. That seems like a reasonable deviation above or below the market to me. I haven't bothered to try and predict whether SCV, market, international, TIPS, or some other factor is likely outperform. It's easy to either rebalance or let each fund over or underperform for longer periods of time.

As long as you are not going to chase the better performer I think it's difficult to say in advance if the choice will matter. I'm busy buying bonds and international but small and value would be my next choice if the US stock market continues to deliver and I can secure my bonds through rebalancing.
tibbitts
Posts: 23716
Joined: Tue Feb 27, 2007 5:50 pm

Re: On the fence of adding small cap value

Post by tibbitts »

PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am So, I'm wondering if anyone Tilts towards Small cap value
or does the simplicity of automation and the potential years of under performance make people prefer more simple approaches?

Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.
No, nobody tilts to SCV. Seriously you can't possibly believe that after reading posts here for a day or two. I have had a very small SCV tilt for many years and haven't changed it much. I have a somewhat larger tilt to value than specifically to SCV. And almost anything invested in international will effectively be value-tilted vs. domestic at this point.

I'm sure some people have 3 or fewer funds, but any preference toward simplicity may be limited by complicating issues, such as annuities, or funds in employer plans (TIAA, etc.)
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: On the fence of adding small cap value

Post by retiredjg »

Welcome to the forum. :happy

There are only two kinds of people who should value tilt in my opinion.
  • 1. A person who strongly believes the tilt will outperform and who is also willing to wait decades for it to happen.

    2. A person who has less of a conviction and wants to dabble, but who does not care if the experiment fails or not.
You don't sound like either of these people to me. My suggestion is forego the tilt. It might work. It might not. Even if it works, the benefit will be small. And I think you will care if it does not work out.
User avatar
rob
Posts: 5247
Joined: Mon Feb 19, 2007 5:49 pm
Location: Here

Re: On the fence of adding small cap value

Post by rob »

secondopinion wrote: Mon Jun 05, 2023 1:11 pm
Marseille07 wrote: Mon Jun 05, 2023 12:53 pm
PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am Tilting toward Small cap value, I don't know how easy it would be to handle potential decades of small cap value under performances.Which could lead to tinkering with AA which would decrease any potential gains of SCV.
I already tend to compare my portfolio to the S&P 500. And tilting toward SCV could mean underperforming the market.
So, I'm wondering if anyone Tilts towards Small cap value
Some people do because they think SCV continues to outperform US TSM. Imo that's not a good idea; it's better to just hold US TSM or S&P500.
Right it is a bad idea to expect outperformance. But if the risk profile is beneficial for the investor, then what is wrong with the tilt?
I tilt to SCV for my perception of reduced risk - I don't expect any out-performance. Everyone has a different defn of "risk", so IMO this is why the risk threads just go nowhere. I also use non-US for my version of risk reduction and to more closely match the market portfolio... and many disagree (while also saying they are market investors).
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
User avatar
calmaniac
Posts: 1325
Joined: Fri Jan 30, 2015 2:32 pm

Re: On the fence of adding small cap value

Post by calmaniac »

PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am I've been on the fence about Adding a tilt toward small cap value.
My sense is that small cap value is not a good choice for someone who is "on the fence".

SCV may underperform the S&P500 for 10-15 years. One has to be a "believer" or at least be sufficiently dispassionate to not jump ship after 5-10 years of underperformance.

I think a simple 3 fund portfolio will be fine for almost everyone in retirement.
"Pretired", working 20 h/wk. AA 75/25: 30% TSM, 19% value (VFVA/AVUV), 18% Int'l LC, 8% emerging, 25% GFund/VBTLX. Military pension ≈60% of expenses. Pension+SS@age 70 ≈100% of expenses.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: On the fence of adding small cap value

Post by secondopinion »

Marseille07 wrote: Mon Jun 05, 2023 1:59 pm
secondopinion wrote: Mon Jun 05, 2023 1:56 pm A negative skew and a high kurtosis hides the true nature of the potential volatility.
I just find this risk profile argument strange, because it is all about the returns at the end of the day.

If return expectations aren't there, then a case to be made is to hold something less risky, not more. In other words, holding something riskier necessarily requires superior return expectations.
We do not get 100 samples of the market to obtain return expectations in a normal distribution if you consider stock as something with duration. There is more than enough of a case for someone to favor skew or kurtosis (whether positive or negative) to the fact that the number of samples is too low to obtain normality. Also, the high volatility that we one "should" be avoiding is sometimes the very thing that individuals can rationally seek (depending on their objectives). I have hinted on the matter of pseudo-leverage using high volatility investments and what the generally means to odds (that is, it generally lowers them since we are not taking the concavity of allocation that leverage normally grants us to our disadvantage); it too plays a part in the complex equation of risk-return. Sadly, this all is a tangled mess of risk that paradoxically has seemly no serious extra expected return. So, I have focused on objectives and personal circumstances rather than chasing some premium as any justification of a tilt.

As far as electing for something of low volatility, may I suggest the SPLV? It had decent returns and volatility, but does not really help on the drawdown (slightly better than the S&P 500, but not what should have happened propositionally). Why should this happen, when the volatility is quite a bit lower? Negative skew and kurtosis. It made some investors upset around here, but they failed to realize this asymmetry; the skew and kurtosis mattered. (https://www.portfoliovisualizer.com/bac ... ion2_2=100)
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: On the fence of adding small cap value

Post by secondopinion »

rob wrote: Mon Jun 05, 2023 3:16 pm
secondopinion wrote: Mon Jun 05, 2023 1:11 pm
Marseille07 wrote: Mon Jun 05, 2023 12:53 pm
PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am Tilting toward Small cap value, I don't know how easy it would be to handle potential decades of small cap value under performances.Which could lead to tinkering with AA which would decrease any potential gains of SCV.
I already tend to compare my portfolio to the S&P 500. And tilting toward SCV could mean underperforming the market.
So, I'm wondering if anyone Tilts towards Small cap value
Some people do because they think SCV continues to outperform US TSM. Imo that's not a good idea; it's better to just hold US TSM or S&P500.
Right it is a bad idea to expect outperformance. But if the risk profile is beneficial for the investor, then what is wrong with the tilt?
I tilt to SCV for my perception of reduced risk - I don't expect any out-performance. Everyone has a different defn of "risk", so IMO this is why the risk threads just go nowhere. I also use non-US for my version of risk reduction and to more closely match the market portfolio... and many disagree (while also saying they are market investors).
Right. Risk is not uniformly defined, so any arguments assuming this are doomed to failure. That is why I have been abstract with risk and not concrete (e.g. use the Sharpe Ratio).
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: On the fence of adding small cap value

Post by Marseille07 »

secondopinion wrote: Mon Jun 05, 2023 3:46 pm We do not get 100 samples of the market to obtain return expectations in a normal distribution if you consider stock as something with duration. There is more than enough of a case for someone to favor skew or kurtosis (whether positive or negative) to the fact that the number of samples is too low to obtain normality. Also, the high volatility that we one "should" be avoiding is sometimes the very thing that individuals can rationally seek (depending on their objectives). I have hinted on the matter of pseudo-leverage using high volatility investments and what the generally means to odds (that is, it generally lowers them since we are not taking the concavity of allocation that leverage normally grants us to our disadvantage); it too plays a part in the complex equation of risk-return. Sadly, this all is a tangled mess of risk that paradoxically has seemly no serious extra expected return. So, I have focused on objectives and personal circumstances rather than chasing some premium as any justification of a tilt.

As far as electing for something of low volatility, may I suggest the SPLV? It had decent returns and volatility, but does not really help on the drawdown (slightly better than the S&P 500, but not what should have happened propositionally). Why should this happen, when the volatility is quite a bit lower? Negative skew and kurtosis. It made some investors upset around here, but they failed to realize this asymmetry; the skew and kurtosis mattered. (https://www.portfoliovisualizer.com/bac ... ion2_2=100)
I'm not too familiar with SPLV but the max drawdown being comparable is concerning to me. The worst year looks good, but that's because 2020 happened to recover.

In any case, we're talking about *tilting*, not modifying S&P500-based investing ideas. Tilting needs good justification, S&P500 does not.
User avatar
Wiggums
Posts: 7051
Joined: Thu Jan 31, 2019 7:02 am

Re: On the fence of adding small cap value

Post by Wiggums »

PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.

Thanks
Josh
We have been investing for 37 years and retired at 56 with the three fund portfolio and treasuries. That is all we are holding. We still buy mutual funds via scheduled purchases. We only logon once a month to download the statement and check for messages. We believe that your savings rate and time in the market is more important. We spent our money wisely. Those are the principles that we lived by. Since the total Stock market fund already has it all, a tilt is just a gamble which may or may not pay off. Not must
"I started with nothing and I still have most of it left."
miket29
Posts: 1065
Joined: Tue Jun 20, 2017 9:07 pm

Re: On the fence of adding small cap value

Post by miket29 »

PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am I've been on the fence about Adding a tilt toward small cap value.
Easy answer. Don't do it.

I have a SCV tilt but realize that
  • it does not outperform yearly but historically only in bursts of time
  • the time between outperformance may be years if not may be decades
  • the SCV effect is well publicized and consequently may have permanently disappeared
Really it's a permanent decision/belief. If someone does it for a while (and "a while" may be decades) and then gives up they will have underperformed the market basket of stocks, perhaps significantly. Someone "on the fence" may not have enough patience and belief in the effect to hold it for decades.
Topic Author
PlymouthBogle
Posts: 4
Joined: Tue May 23, 2023 10:22 am

Re: On the fence of adding small cap value

Post by PlymouthBogle »

Wiggums wrote: Mon Jun 05, 2023 4:39 pm
PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.

Thanks
Josh
We have been investing for 37 years and retired at 56 with the three fund portfolio and treasuries. That is all we are holding. We still buy mutual funds via scheduled purchases. We only logon once a month to download the statement and check for messages. We believe that your savings rate and time in the market is more important. We spent our money wisely. Those are the principles that we lived by. Since the total Stock market fund already has it all, a tilt is just a gamble which may or may not pay off. Not must
I appreciate hearing this, I’ve read this sub many times and it can be weird not seeing many people that actually retired with a 3 find portfolio, I know it exist but it’s reassuring to hear from people that have done it
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: On the fence of adding small cap value

Post by secondopinion »

Marseille07 wrote: Mon Jun 05, 2023 4:01 pm
secondopinion wrote: Mon Jun 05, 2023 3:46 pm We do not get 100 samples of the market to obtain return expectations in a normal distribution if you consider stock as something with duration. There is more than enough of a case for someone to favor skew or kurtosis (whether positive or negative) to the fact that the number of samples is too low to obtain normality. Also, the high volatility that we one "should" be avoiding is sometimes the very thing that individuals can rationally seek (depending on their objectives). I have hinted on the matter of pseudo-leverage using high volatility investments and what the generally means to odds (that is, it generally lowers them since we are not taking the concavity of allocation that leverage normally grants us to our disadvantage); it too plays a part in the complex equation of risk-return. Sadly, this all is a tangled mess of risk that paradoxically has seemly no serious extra expected return. So, I have focused on objectives and personal circumstances rather than chasing some premium as any justification of a tilt.

As far as electing for something of low volatility, may I suggest the SPLV? It had decent returns and volatility, but does not really help on the drawdown (slightly better than the S&P 500, but not what should have happened propositionally). Why should this happen, when the volatility is quite a bit lower? Negative skew and kurtosis. It made some investors upset around here, but they failed to realize this asymmetry; the skew and kurtosis mattered. (https://www.portfoliovisualizer.com/bac ... ion2_2=100)
I'm not too familiar with SPLV but the max drawdown being comparable is concerning to me. The worst year looks good, but that's because 2020 happened to recover.

In any case, we're talking about *tilting*, not modifying S&P500-based investing ideas.
Lofty goals require magnification; conservative goals need hedging. Of course, we should adjust the stock/bond allocation first. But generally speaking, beyond this is about trying to magnify/hedge risks beyond this. Value has been more tied to economic conditions; growth is more evaluations-driven. Which risk is worse has a lot to do with whether the economy or the market valuations have more correlation with your job. There is overlap, but it can differ.

And then we have to consider the effective stock duration, which is lower for value stocks than growth stocks; it is possibly safer in the shorter term to have slightly more value-centric stocks (but heavy on profitability and size) than growth stocks of similar specification (hence why low-volatility stocks tend to be slightly value tilted). Using growth instead of value might pose a tad more safety for longer durations.

But as I said, risk does not always behave the way we would expect. I am sure that I do not understand it fully. However, the hope is by understanding risks that I avoid taking more of a risk that I do not need.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: On the fence of adding small cap value

Post by Marseille07 »

secondopinion wrote: Mon Jun 05, 2023 5:25 pm Lofty goals require magnification; conservative goals need hedging. Of course, we should adjust the stock/bond allocation first. But generally speaking, beyond this is about trying to magnify/hedge risks beyond this. Value has been more tied to economic conditions; growth is more evaluations-driven. Which risk is worse has a lot to do with whether the economy or the market valuations have more correlation with your job. There is overlap, but it can differ.

And then we have to consider the effective stock duration, which is lower for value stocks than growth stocks; it is possibly safer in the shorter term to have slightly more value-centric stocks (but heavy on profitability and size) than growth stocks of similar specification (hence why low-volatility stocks tend to be slightly value tilted). Using growth instead of value might pose a tad more safety for longer durations.

But as I said, risk does not always behave the way we would expect. I am sure that I do not understand it fully. However, the hope is by understanding risks that I avoid taking more of a risk that I do not need.
But here is the thing, a small small-cap tilt gets blown away by your overall allocation. For example, someone holding 60/40 with a 20% tilt is still not as aggressive as someone holding 80/20 S&P500 no tilting. One needs to carefully evaluate tilting really moves your bottom line.
WhiteMaxima
Posts: 3338
Joined: Thu May 19, 2016 5:04 pm

Re: On the fence of adding small cap value

Post by WhiteMaxima »

speculation and market timing.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: On the fence of adding small cap value

Post by secondopinion »

Marseille07 wrote: Mon Jun 05, 2023 5:32 pm
secondopinion wrote: Mon Jun 05, 2023 5:25 pm Lofty goals require magnification; conservative goals need hedging. Of course, we should adjust the stock/bond allocation first. But generally speaking, beyond this is about trying to magnify/hedge risks beyond this. Value has been more tied to economic conditions; growth is more evaluations-driven. Which risk is worse has a lot to do with whether the economy or the market valuations have more correlation with your job. There is overlap, but it can differ.

And then we have to consider the effective stock duration, which is lower for value stocks than growth stocks; it is possibly safer in the shorter term to have slightly more value-centric stocks (but heavy on profitability and size) than growth stocks of similar specification (hence why low-volatility stocks tend to be slightly value tilted). Using growth instead of value might pose a tad more safety for longer durations.

But as I said, risk does not always behave the way we would expect. I am sure that I do not understand it fully. However, the hope is by understanding risks that I avoid taking more of a risk that I do not need.
But here is the thing, a small small-cap tilt gets blown away by your overall allocation. For example, someone holding 60/40 with a 20% tilt is still not as aggressive as someone holding 80/20 S&P500 no tilting. One needs to carefully evaluate tilting really moves your bottom line.
It does; that is why the asset allocation is primary and any tilts are secondary. I will not argue it otherwise.

However, factors are by design supposed to account for the observed variances of return. That is, if one is going to tilt, then these will have the best chance of actually making any difference. Sadly, it is not like adding duration risk or credit risk to fixed-income where it is rather well understood.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
User avatar
nisiprius
Advisory Board
Posts: 52212
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: On the fence of adding small cap value

Post by nisiprius »

retiredjg wrote: Mon Jun 05, 2023 3:09 pm...There are only two kinds of people who should value tilt in my opinion.
  • 1. A person who strongly believes the tilt will outperform and who is also willing to wait decades for it to happen.

    2. A person who has less of a conviction and wants to dabble, but who does not care if the experiment fails or not.
...
Well said.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Nate7out
Posts: 410
Joined: Wed Jan 16, 2008 1:06 pm

Re: On the fence of adding small cap value

Post by Nate7out »

retiredjg wrote: Mon Jun 05, 2023 3:09 pm Welcome to the forum. :happy

There are only two kinds of people who should value tilt in my opinion.
  • 1. A person who strongly believes the tilt will outperform and who is also willing to wait decades for it to happen.

    2. A person who has less of a conviction and wants to dabble, but who does not care if the experiment fails or not.
You don't sound like either of these people to me. My suggestion is forego the tilt. It might work. It might not. Even if it works, the benefit will be small. And I think you will care if it does not work out.
I'm person 2. For the OP, I found this discussion of adding SCV to a portfolio interesting.

https://portfoliocharts.com/2021/12/16/ ... ortfolios/
User avatar
FoundingFather
Posts: 407
Joined: Fri Dec 18, 2020 9:20 pm

Re: On the fence of adding small cap value

Post by FoundingFather »

retiredjg wrote: Mon Jun 05, 2023 3:09 pm Welcome to the forum. :happy

There are only two kinds of people who should value tilt in my opinion.
  • 1. A person who strongly believes the tilt will outperform and who is also willing to wait decades for it to happen.

    2. A person who has less of a conviction and wants to dabble, but who does not care if the experiment fails or not.
You don't sound like either of these people to me. My suggestion is forego the tilt. It might work. It might not. Even if it works, the benefit will be small. And I think you will care if it does not work out.
This is a very good summary. I recommend a three-fund-esque portfolio, based on options available, as everyone's default. It's where I think you should be.

I did a three fund myself for a while, but found that I was a mix of person one and two above, so I ended up going with a slightly small/mid cap and value tilted approach (using AVGE), which I am very happy with.

If you can do a three fund portfolio and the tinker demons don't come for you in the night :wink: , then call it a day and spend your time on other things.

Founding Father
"I do not think myself equal to the Command I am honored with." -George Washington (excerpt from Journals of the Continental Congress, 16 June 1775)
placeholder
Posts: 8421
Joined: Tue Aug 06, 2013 12:43 pm

Re: On the fence of adding small cap value

Post by placeholder »

I have a tilt to small and value but I decided that before I ever started and haven't changed that since.
stocknoob4111
Posts: 3509
Joined: Sun Jan 07, 2018 11:52 am

Re: On the fence of adding small cap value

Post by stocknoob4111 »

Small Cap Value 5 year trailing real total return as of end May 2023 is less than ZERO. That is quite frankly alarming. Hopefully we will see some decent performance going forward.

https://tinyurl.com/3jfrwn2b
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: On the fence of adding small cap value

Post by Marseille07 »

secondopinion wrote: Mon Jun 05, 2023 6:05 pm However, factors are by design supposed to account for the observed variances of return. That is, if one is going to tilt, then these will have the best chance of actually making any difference. Sadly, it is not like adding duration risk or credit risk to fixed-income where it is rather well understood.
This doesn't make sense because there are at least 6 factors (SCV SCG MCV....you get the idea). It's mathematically not possible that all factors provide the best chance of actually making any difference, whatever this even means.

Let's face it, whoever chasing SCV do so because historical CAGR has been superior. Those who don't admit that are being dishonest with themselves.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: On the fence of adding small cap value

Post by secondopinion »

Marseille07 wrote: Tue Jun 06, 2023 12:44 am
secondopinion wrote: Mon Jun 05, 2023 6:05 pm However, factors are by design supposed to account for the observed variances of return. That is, if one is going to tilt, then these will have the best chance of actually making any difference. Sadly, it is not like adding duration risk or credit risk to fixed-income where it is rather well understood.
This doesn't make sense because there are at least 6 factors (SCV SCG MCV....you get the idea). It's mathematically not possible that all factors provide the best chance of actually making any difference, whatever this even means.

Let's face it, whoever chasing SCV do so because historical CAGR has been superior. Those who don't admit that are being dishonest with themselves.
Those are different combinations of two factors at various degrees: HML and SMB (approximately value/growth and size). Like duration and credit risk, it is a spectrum. What I mean by “making a difference” is that the tracking error exists despite having hundreds or even thousands of stocks. Sometimes, the tracking error is what is desired.

I was a value investor before Bogleheads; I thought it was reasonable business to make sure books and earnings were sound at a realistic price. Most of my choices then would have been mid-cap value. I knew nothing that there was even a benchmark. I was satisfied with my results; I did not care what others made (whether more or less). I knew there would always be better or worse, so I stayed with what worked reasonably.

So, I was, I guess, an almost counterexample to your claim about small-cap value investing. These days, I still tilt towards value (albeit by ETFs rather than 30+ stocks). The supposed premium is not why I stay because I do not think there is one.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Topic Author
PlymouthBogle
Posts: 4
Joined: Tue May 23, 2023 10:22 am

How to execute this Asset allocation

Post by PlymouthBogle »

[Thread merged into here --admin LadyGeek]

Hello, so currently my AA is 80 FIdelity S&P 500 (FXAIX) and 20% Fidelity Total International (FTIHX). I have this AA in the same proportions throughout my 401K and Roth. I highly value simplicity as thats why I like using the same funds, across the board. I have been thinking about adding in a small portion of small cap into my portfolio in the form of IJR, my workplace 401k does have a good selection of mutual funds but I don't much care for Fidelity's small cap funds. I'm trying to think if it would be possible to achieve that AA of 68/12/20 by just holding IJR in my Roth? My total portfolio balance is still rather small, but how would I adjust my 401k contributions to help achieve that AA. I'm wondering if once my 401K balance gets large would it be difficult to keep up with the AA by only buying IJR in my Roth. My 401K match is currently 2:1, they double what i put in up to 5%. How would one try to achieve this by using IJR? I currently use Rob Bergers AA spreadhseet which makes tracking my balance really easy, but I'm trying to figure out what the adjustment in my 401k would be ? Would I just keep the 80% 20% and buy mainly IJR in the Roth to equal the 12%?
User avatar
LadyGeek
Site Admin
Posts: 95691
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: On the fence of adding small cap value

Post by LadyGeek »

PlymouthBogle - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

(Thanks to the member who reported the post and provided a link to this thread.)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
sycamore
Posts: 6360
Joined: Tue May 08, 2018 12:06 pm

Re: How to execute this Asset allocation

Post by sycamore »

PlymouthBogle wrote: Sun Nov 05, 2023 6:13 am [Thread merged into here --admin LadyGeek]

Hello, so currently my AA is 80 FIdelity S&P 500 (FXAIX) and 20% Fidelity Total International (FTIHX). I have this AA in the same proportions throughout my 401K and Roth. I highly value simplicity as thats why I like using the same funds, across the board. I have been thinking about adding in a small portion of small cap into my portfolio in the form of IJR, my workplace 401k does have a good selection of mutual funds but I don't much care for Fidelity's small cap funds. I'm trying to think if it would be possible to achieve that AA of 68/12/20 by just holding IJR in my Roth? My total portfolio balance is still rather small, but how would I adjust my 401k contributions to help achieve that AA. I'm wondering if once my 401K balance gets large would it be difficult to keep up with the AA by only buying IJR in my Roth. My 401K match is currently 2:1, they double what i put in up to 5%. How would one try to achieve this by using IJR? I currently use Rob Bergers AA spreadhseet which makes tracking my balance really easy, but I'm trying to figure out what the adjustment in my 401k would be ? Would I just keep the 80% 20% and buy mainly IJR in the Roth to equal the 12%?
So you want 12/80 = 15% of US equities in small cap. Looking at https://www.bogleheads.org/wiki/Approxi ... ock_market I see that an 85/15 split between large cap and small cap is a rather close approximation of a total stock market fund.

The simplest thing to do is switch out of S&P 500 into a Total Stock Market fund, both your existing shares and future contributions. Then you don't have to even think about rebalancing or figuring out the right contribution splits.

Does your 401k have a good Total Stock Market fund?
User avatar
HMSVictory
Posts: 1715
Joined: Sun Nov 01, 2020 6:02 am
Location: Lower Gun Deck

Re: On the fence of adding small cap value

Post by HMSVictory »

Automation and easy of execution > some small delta you might (key word might) gain going with AXUS.

VTI contains about 9% small cap (including small cap value funds) so the maximum I would add would be a 10% holding.

VOO and 20% AXUS would be fine but go back to point one.
Stay the course!
rkhusky
Posts: 17764
Joined: Thu Aug 18, 2011 8:09 pm

Re: On the fence of adding small cap value

Post by rkhusky »

Adding IJR to the Roth IRA and maintaining a set allocation would be easy to do, but will be more complicated than your current allocation. You will have to decide if the additional complexity is worth the uncertain potential benefit of IJR. Do you plan to add bonds at some point? If so, what is your plan for those?

Simply multiply your total 401k + IRA amount by 12% and that is how much you would need in IJR in the IRA. How does that look?
Last edited by rkhusky on Sun Nov 05, 2023 1:38 pm, edited 1 time in total.
UpperNwGuy
Posts: 9479
Joined: Sun Oct 08, 2017 7:16 pm

Re: On the fence of adding small cap value

Post by UpperNwGuy »

PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am Also, is there anyone in this sub that is currently retired and has only 3 funds?
Yes. I am retired and I have only three funds.
User avatar
ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: On the fence of adding small cap value

Post by ruralavalon »

You are happy with your current allocation, concerned about adding inconvenience, and on the fence. So don't add the small-cap value tilt.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Exchme
Posts: 1335
Joined: Sun Sep 06, 2020 3:00 pm

Re: On the fence of adding small cap value

Post by Exchme »

PlymouthBogle wrote: Mon Jun 05, 2023 5:23 pm
Wiggums wrote: Mon Jun 05, 2023 4:39 pm
PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.

Thanks
Josh
We have been investing for 37 years and retired at 56 with the three fund portfolio and treasuries. That is all we are holding. We still buy mutual funds via scheduled purchases. We only logon once a month to download the statement and check for messages. We believe that your savings rate and time in the market is more important. We spent our money wisely. Those are the principles that we lived by. Since the total Stock market fund already has it all, a tilt is just a gamble which may or may not pay off. Not must
I appreciate hearing this, I’ve read this sub many times and it can be weird not seeing many people that actually retired with a 3 find portfolio, I know it exist but it’s reassuring to hear from people that have done it
For us, it's not that we don't believe in the 3 fund, it's that by the time we gained enough life and investing experience to really get it, we were trapped by our past "sins" with various tilts and other junk that have embedded capital gains. We straightened out our IRAs and Roth, and did some cleanup of taxable in that latest downturn, but much detritus remains in taxable. If you keep it simple from the start, then you will be in better shape to avoid complexity that you may not be able to handle as you age and you will probably be better off financially.
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: On the fence of adding small cap value

Post by nedsaid »

PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am First time poster

I've been on the fence about Adding a tilt toward small cap value. As of the moment I am very happy with my asset allocation. I just started getting into the low cost index fund investing space about a year and half ago. As of the moment I'm 80/20 US/Intl with zero bonds (yes i'm aware of the risk) I'm also 28 as well. My 401k has ample amount of Fidelity funds to allow me to mirror that AA across accounts using FXAIX/FTIHX. I've been thinking of adding AVUV at about 25% to be at 55% FXAIX, 25%AVUV and 20% FTIHX. I would hope it would add about 0.5-1.0 increase in returns over 30+ years as well as some added diversification.
My concerns are though, I would only want to add AVUV and not any of Fidelitys small cap value funds. Which would take away from my current hands off automated investing as I would have to manually by that ETF in my Roth. I think automation allows for a very powerful hands off approach that can prevent too much checking of my portfolio. Which leads to my next point....
Tilting toward Small cap value, I don't know how easy it would be to handle potential decades of small cap value under performances.Which could lead to tinkering with AA which would decrease any potential gains of SCV.
I already tend to compare my portfolio to the S&P 500. And tilting toward SCV could mean underperforming the market.
So, I'm wondering if anyone Tilts towards Small cap value
or does the simplicity of automation and the potential years of under performance make people prefer more simple approaches?

Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.

Thanks
Josh
If you have a strong conviction about Small Cap Value, you should tilt. If you don't, then don't. Sounds to me like you are very happy with your current allocation and that seems to me to be the answer to your own question.
A fool and his money are good for business.
User avatar
NateH
Posts: 724
Joined: Tue Feb 27, 2007 8:51 am
Location: Minnesota

Re: On the fence of adding small cap value

Post by NateH »

starting to sense some holes in the total market armor.

OP, it may take decades to find the elusive small-value premium. if you pull the trigger, be ready for chronic AVUS underperformance as well as overperformance.
4X top-twenty S&P 500 prognosticator. I'd start a newsletter, but it would only have one issue per year. | dumb investor during 1999 tech bubble, current slice & dicer.
Outer Marker
Posts: 4382
Joined: Sun Mar 08, 2009 8:01 am

Re: On the fence of adding small cap value

Post by Outer Marker »

After nearly a quarter century of holding SCV, I never saw the illusory SCV "premium." Whether or not it will appear in my lifetime is debatable, but my time horizon is not unlimited. I've since consolidated into essentially a 3-funder. My advice would be don't.
donaldfair71
Posts: 1241
Joined: Wed Mar 06, 2013 3:15 pm

Re: On the fence of adding small cap value

Post by donaldfair71 »

nedsaid wrote: Sun Nov 05, 2023 11:27 am
PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am First time poster

I've been on the fence about Adding a tilt toward small cap value. As of the moment I am very happy with my asset allocation. I just started getting into the low cost index fund investing space about a year and half ago. As of the moment I'm 80/20 US/Intl with zero bonds (yes i'm aware of the risk) I'm also 28 as well. My 401k has ample amount of Fidelity funds to allow me to mirror that AA across accounts using FXAIX/FTIHX. I've been thinking of adding AVUV at about 25% to be at 55% FXAIX, 25%AVUV and 20% FTIHX. I would hope it would add about 0.5-1.0 increase in returns over 30+ years as well as some added diversification.
My concerns are though, I would only want to add AVUV and not any of Fidelitys small cap value funds. Which would take away from my current hands off automated investing as I would have to manually by that ETF in my Roth. I think automation allows for a very powerful hands off approach that can prevent too much checking of my portfolio. Which leads to my next point....
Tilting toward Small cap value, I don't know how easy it would be to handle potential decades of small cap value under performances.Which could lead to tinkering with AA which would decrease any potential gains of SCV.
I already tend to compare my portfolio to the S&P 500. And tilting toward SCV could mean underperforming the market.
So, I'm wondering if anyone Tilts towards Small cap value
or does the simplicity of automation and the potential years of under performance make people prefer more simple approaches?

Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.

Thanks
Josh
If you have a strong conviction about Small Cap Value, you should tilt. If you don't, then don't. Sounds to me like you are very happy with your current allocation and that seems to me to be the answer to your own question.
I think this is good advice.

Whether you do or don’t, you want to stay in it through thick and thin. Unless 100% convicted, there’s nothing wrong with total market index invested. There’s a ton right with it though.
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: On the fence of adding small cap value

Post by nedsaid »

donaldfair71 wrote: Mon Nov 06, 2023 12:40 pm
nedsaid wrote: Sun Nov 05, 2023 11:27 am
PlymouthBogle wrote: Mon Jun 05, 2023 10:10 am First time poster

I've been on the fence about Adding a tilt toward small cap value. As of the moment I am very happy with my asset allocation. I just started getting into the low cost index fund investing space about a year and half ago. As of the moment I'm 80/20 US/Intl with zero bonds (yes i'm aware of the risk) I'm also 28 as well. My 401k has ample amount of Fidelity funds to allow me to mirror that AA across accounts using FXAIX/FTIHX. I've been thinking of adding AVUV at about 25% to be at 55% FXAIX, 25%AVUV and 20% FTIHX. I would hope it would add about 0.5-1.0 increase in returns over 30+ years as well as some added diversification.
My concerns are though, I would only want to add AVUV and not any of Fidelitys small cap value funds. Which would take away from my current hands off automated investing as I would have to manually by that ETF in my Roth. I think automation allows for a very powerful hands off approach that can prevent too much checking of my portfolio. Which leads to my next point....
Tilting toward Small cap value, I don't know how easy it would be to handle potential decades of small cap value under performances.Which could lead to tinkering with AA which would decrease any potential gains of SCV.
I already tend to compare my portfolio to the S&P 500. And tilting toward SCV could mean underperforming the market.
So, I'm wondering if anyone Tilts towards Small cap value
or does the simplicity of automation and the potential years of under performance make people prefer more simple approaches?

Also, is there anyone in this sub that is currently retired and has only 3 funds? I'm sure one could have a perfectly fine retirement base off of a high savings rate and a 3 fund portfolio, but the whole adding small cap value idea was also to give me more diversification once in retirement and possibly 0.5-1% increase in returns.

Thanks
Josh
If you have a strong conviction about Small Cap Value, you should tilt. If you don't, then don't. Sounds to me like you are very happy with your current allocation and that seems to me to be the answer to your own question.
I think this is good advice.

Whether you do or don’t, you want to stay in it through thick and thin. Unless 100% convicted, there’s nothing wrong with total market index invested. There’s a ton right with it though.
Yep. I started tilting in 2007-2008 which was precisely the wrong time to do it. I have been very, very, very patient.
A fool and his money are good for business.
Post Reply