Total Market Stocks vs. Diverse Mix
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- mathjak107
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Total Market Stocks vs. Diverse Mix
Nice job ,good for a rough comparision. The wild card on all models will be what investors actually owned .
The trouble with using only one fund to represent stocks as we all know is the total market fund is really only an s&p 500 fund with another name.
While most of the last 15 years saw large caps turn in poor performance the mid caps and small caps did far better. Most of the last 7 years with the exception of last year midcaps and small caps beat the s&p by 5 to 6% every year yet a total market fund captured about 1% of that difference because the s&p dominates the total market fund.
A more diverse mix of equitys as opposed to a single weighted total market fund in any of the lazy boy mixes would have turned in quite a higher return.
The trouble with using only one fund to represent stocks as we all know is the total market fund is really only an s&p 500 fund with another name.
While most of the last 15 years saw large caps turn in poor performance the mid caps and small caps did far better. Most of the last 7 years with the exception of last year midcaps and small caps beat the s&p by 5 to 6% every year yet a total market fund captured about 1% of that difference because the s&p dominates the total market fund.
A more diverse mix of equitys as opposed to a single weighted total market fund in any of the lazy boy mixes would have turned in quite a higher return.
Last edited by mathjak107 on Wed Aug 05, 2015 5:12 am, edited 1 time in total.
Re: Total Market Stocks vs. Diverse Mix
Or much, much worse.mathjak107 wrote:A more diverse mix of equitys as opposed to a single weighted total market fund in any of the lazy boy mixes would have turned in quite a higher return.
- mathjak107
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Re: Total Market Stocks vs. Diverse Mix
Except over every time frame posted a diversifiied mix of funds beat the s&p 500 or total market fund 100% of the time because the other market segments always added more to the returns, never less.
Remember we are talking about the past posted results which are known and being compared in the past..
The more actual weight given to the extended market as it is called the higher the returns would have been over those time frames.
Trying to compare is almost like asking how long is a rope?
There really is no way to compare outcomes as they really play out in investor returns
Remember we are talking about the past posted results which are known and being compared in the past..
The more actual weight given to the extended market as it is called the higher the returns would have been over those time frames.
Trying to compare is almost like asking how long is a rope?
There really is no way to compare outcomes as they really play out in investor returns
Last edited by mathjak107 on Wed Aug 05, 2015 8:21 am, edited 1 time in total.
Re: Total Market Stocks vs. Diverse Mix
a diversified mix or every diversified mix?
- mathjak107
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Re: Total Market Stocks vs. Diverse Mix
Taking those lazy boy models and adding more extended market and less s&p 500 iinfluence would have improved all models over those time frames above .
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Re: Total Market Stocks vs. Diverse Mix
I do like the charts though for what i will call a lab view . It may not be a real world investor outcome but like gas milage claims do provide a standardized comparison.
- Pointedstick
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Re: Total Market Stocks vs. Diverse Mix
Okay… Here's a graph of VFINX (SP500) vs VEXMX (expended market) over the last 28 years. Looks to me that during some times, the SP500 beats the extended market, and sometimes the reverse is true:mathjak107 wrote: Taking those lazy boy models and adding more extended market and less s&p 500 iinfluence would have improved all models over those time frames above .
[img width=600]http://i.imgur.com/H5LIN7v.png[/img]
Can you explain how you've concluded that "adding more extended market and less s&p 500 iinfluence would have improved all models over those time frames"?
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Re: Total Market Stocks vs. Diverse Mix
That certainly could be true in some cases. For comparing lazy portfolios, I tried my best to represent each portfolio as proposed by the inventor. Most go with a TSM/S&P500 fund, although some like Swedroe use other more specific funds.mathjak107 wrote: A more diverse mix of equitys as opposed to a single weighted total market fund in any of the lazy boy mixes would have turned in quite a higher return.
Perhaps you didn't notice, but the calculators section of PortfolioCharts includes all kinds of equity funds (small cap, emerging market, etc) and is user-modifiable. If you want to see what more equity variety will do vs the S&P500, try it out and report back!
- mathjak107
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Re: Total Market Stocks vs. Diverse Mix
Excellent on that aspect. I will have to try that. Away on vacation now celebtrating retirement and my wifes birthday using my nook so i can't do to much
- mathjak107
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Re: Total Market Stocks vs. Diverse Mix
Well lets make it simple.Pointedstick wrote:Okay… Here's a graph of VFINX (SP500) vs VEXMX (expended market) over the last 28 years. Looks to me that during some times, the SP500 beats the extended market, and sometimes the reverse is true:mathjak107 wrote: Taking those lazy boy models and adding more extended market and less s&p 500 iinfluence would have improved all models over those time frames above .
[img width=600]http://i.imgur.com/H5LIN7v.png[/img]
Can you explain how you've concluded that "adding more e
market and less s&p 500 iinfluence would have improved all models over those time frames"
What are the average returns for the market less the s&p for the 10 ,20 and 30 year returns compared to the s&p 500. We are not talking year to year but over the long term averages.
Re: Total Market Stocks vs. Diverse Mix
Mathjak-
I totally agree that Small/Midcap increase long-term performance. Which is why I use them in my JuicyPP: http://www.tightwadweb.com/customportfolio.html
Tyler, PointedStick-
Here's the results of Small/Mid vs Large (S&P500). Chart below shows the difference from 1972-2014. I realize that past performance does not predict future returns, but there are fundamental reasons why Small/Mid perform better, mainly their enormous growth potential.
I totally agree that Small/Midcap increase long-term performance. Which is why I use them in my JuicyPP: http://www.tightwadweb.com/customportfolio.html
Tyler, PointedStick-
Here's the results of Small/Mid vs Large (S&P500). Chart below shows the difference from 1972-2014. I realize that past performance does not predict future returns, but there are fundamental reasons why Small/Mid perform better, mainly their enormous growth potential.
Last edited by ozzy on Mon Aug 10, 2015 12:21 pm, edited 1 time in total.
- mathjak107
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Re: Total Market Stocks vs. Diverse Mix
interesting portfolio , i never saw the juicy portfolio before . at 50-55% equity it has quite an interesting mix .
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Re: Total Market Stocks vs. Diverse Mix
I'm a fan of RSP equal weight SP500. It has outperformed SPY handily over the past decade or so but comes with a .4% expense ratio (not that I think out performance over X period is a good measure of what's better).
From all the research I've done, it seems smart people cannot agree on whether it's worth the extra expense or whether its out performance is simply extra beta, a relalancing bonus or something else.
IMO, it's probably a situation where in the future it will under perform or over perform the SPY over short periods, but you have to make a bet about whether it will outperform on a risk adjusted basis over the long term. Personally I'm sticking with it because:
1) Investing in a cap weighted index that is dominated by a small fraction of constituents is counter the purpose of indexing and diversification and amounts to a mega cap momentum strategy...I'd rather go with true diversification even if I can't guarantee it won't outperform mega cap momentum during all periods in the future. To put it in even more concrete terms, why would I want to place a bit bet on Apple?
2) The increased volatility of RSP vs. SPY is good in the context of the PP because TLT and GLD tend to have higher volatility anyway, so its a nice counter balance.
3) I'm betting there's a good chance a lower priced competitor to RSP will emerge, reducing the impact of the expense ratio over the long term.
4) When you think about it, choosing to cap weight and rebalance X times per year as in SPY is not a magic naturalistic set of rules handed down by the Gods...it's just a set of rules humans came up with, and I don't think there should be the presumption that that set of rules is superior to any other set of rules, especially when the other set of rules is more diversified and market cap neutral.
5) The other extended market ETFs I've seen beyond SPY also suffer from the same overweight problem in the largest caps, so they aren't a good alternative answer vs. RSP.
6) I personally sleep better at night knowing I'm really diversified vs. making a big bet on Apple, Google and handful of other mega caps and if that helps me stick to the plan then it's probably worth the extra expense because panic selling is the worst of all options.
Check out boglehead threads for some great research into the issue. I'd be curious what others here conclude.
From all the research I've done, it seems smart people cannot agree on whether it's worth the extra expense or whether its out performance is simply extra beta, a relalancing bonus or something else.
IMO, it's probably a situation where in the future it will under perform or over perform the SPY over short periods, but you have to make a bet about whether it will outperform on a risk adjusted basis over the long term. Personally I'm sticking with it because:
1) Investing in a cap weighted index that is dominated by a small fraction of constituents is counter the purpose of indexing and diversification and amounts to a mega cap momentum strategy...I'd rather go with true diversification even if I can't guarantee it won't outperform mega cap momentum during all periods in the future. To put it in even more concrete terms, why would I want to place a bit bet on Apple?
2) The increased volatility of RSP vs. SPY is good in the context of the PP because TLT and GLD tend to have higher volatility anyway, so its a nice counter balance.
3) I'm betting there's a good chance a lower priced competitor to RSP will emerge, reducing the impact of the expense ratio over the long term.
4) When you think about it, choosing to cap weight and rebalance X times per year as in SPY is not a magic naturalistic set of rules handed down by the Gods...it's just a set of rules humans came up with, and I don't think there should be the presumption that that set of rules is superior to any other set of rules, especially when the other set of rules is more diversified and market cap neutral.
5) The other extended market ETFs I've seen beyond SPY also suffer from the same overweight problem in the largest caps, so they aren't a good alternative answer vs. RSP.
6) I personally sleep better at night knowing I'm really diversified vs. making a big bet on Apple, Google and handful of other mega caps and if that helps me stick to the plan then it's probably worth the extra expense because panic selling is the worst of all options.
Check out boglehead threads for some great research into the issue. I'd be curious what others here conclude.
Re: Total Market Stocks vs. Diverse Mix
Sam,
I totally agree with all your points. My own research shows much better performance and diversification with the inclusion of Small/Midcaps. But the expense ratio on RSP is a whopping 0.40%! Yikes!
Why not use individual Small/Midcap ETFs instead? For example, replace RSP with IJR, IJH, VTI, all are high-quality funds with very low expenses. I realize adding 2 more ETFs increases the complexity slightly, but you're only rebalancing yearly, so it's hardly anything.
Also, you can use Morningstar's Instant X-Ray (free tool) to determine a portfolio's detailed breakdown (including cap-weighting). This allows you to configure a portfolio with the exact weighing you desire. Check it out: http://portfolio.morningstar.com/Rtport ... Entry.aspx
I totally agree with all your points. My own research shows much better performance and diversification with the inclusion of Small/Midcaps. But the expense ratio on RSP is a whopping 0.40%! Yikes!
Why not use individual Small/Midcap ETFs instead? For example, replace RSP with IJR, IJH, VTI, all are high-quality funds with very low expenses. I realize adding 2 more ETFs increases the complexity slightly, but you're only rebalancing yearly, so it's hardly anything.
Also, you can use Morningstar's Instant X-Ray (free tool) to determine a portfolio's detailed breakdown (including cap-weighting). This allows you to configure a portfolio with the exact weighing you desire. Check it out: http://portfolio.morningstar.com/Rtport ... Entry.aspx
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Re: Total Market Stocks vs. Diverse Mix
I rationalize it because of reasons #5 and 6 above mostly, but truth be told, I'm not sure it's rational to be paying that much expense ratio...I have personal deep seated biases against a few of the top companies in the S&P 500 cap weighted (like Apple) and I know myself...if those stocks start to crash there's just too much risk I'll panic sell. So it makes sense for me to pay for the peace of mind of RSP, but not sure about for others.ozzy wrote: Sam,
I totally agree with all your points. My own research shows much better performance and diversification with the inclusion of Small/Midcaps. But the expense ratio on RSP is a whopping 0.40%! Yikes!
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Re: Total Market Stocks vs. Diverse Mix
After doing some more research, it seems EQAL may be the better choice than RSP because it's a .2% expense vs .4%...still worse than SPY but a big improvement.