Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
hey , you want to use it as a one stop investment for the market ? go a head .
but i will still tell you it is not representative enough of the other market segments to bring much value to the party . i fail to see the point of even using it as opposed to just an s&p 500 fund . which i will say the same thing about .
you will leave a lot of money on the table over time if you call that a portfolio by itself .
So you would suggest that someone invest in a large cap fund and an S&P 500 index fund for extra diversification?
I am way overweight Russell 2k in my 401k (It's about 20% of my portfolio), so I understand what you are saying, but it isn't even remotely related to what I was talking about.
One is about diversification the other is about proper asset allocation for long term alpha. An S&P 500 fund or total market fund is very diversified, but you can continue to argue that it is not.
noooooooooooooo that is not what i said , i would never use a large cap fund and an s&p 500 fund . i said they should invest in an s&p 500 fund and an extended market fund or small cap value fund . i use vxf as an extended market fund . after the 32% run up my small cap value fund was stalling and falling so i moved to an extended market fund which is 1/2 the volatility . if markets fall i will go back to small cap value again for more oomph . .
an extended market fund is all the other stocks less the s&p 500 so the s&p 500 does not influence it . now you can weight it to get the representation in other segments separately.
for 2016 vxf returned 16.20% so compared to a total market fund's 12.68 ,32% on a small cap value fund and the s&p 500 12% return you can see there is quite a difference in representation that you can mix in . you can easily see 1 to 2% more in gains a year as an average by avoiding a total market fund .
noooooooooooooo that is not what i said , i would never use a large cap fund and an s&p 500 fund . i said they should invest in an s&p 500 and an extended market fund . i use vxf .
it is all the other stocks less the s&p 500 so the s&p 500 does not influence it .
so going back to my original point, a lot of people don't understand that one fund can be diversified, so they will invest in essentially the same thing 3-4x thinking they are getting additional diversification. If they can't even comprehend that, how can one expect them to be completely unaffected when they watch their portfolio crash 50% over a period of 1-2 months. That's all I was trying to say, lol.
overlap is a different problem . that is a very complex issue to deal with . in fact someone on another forum blew us away when they compared i-shares index funds to vanguard as far as someone trying to put a large , mid and small cap portfolio together and the overlap they ran in to between different funds from some family's . vanguard was awful with overlap between the segments . i-shares versions were excellent in that regard .
this is one reason i would not mix fund families anymore even on index funds . i much prefer i-shares to vanguard . to bad i already own vanguards , i would have gone with i-shares .
vanguard was bad as far as overlap .
eufo found :
splitting exposure into 3 parts... large/mid/small cap (all blends).
Vanguard:
Large - VOO - $63.8B Assets - 0.05% ER
Mid - VO - $18.4B Assets - 0.09% ER
Small - VB - $17.6B Assets - 0.09% ER
iShares:
Large - IVV - $101.2B Assets - 0.04% ER
Mid - IJH - $38.4B Assets - 0.07% ER
Small - IJR - $29.4B Assets - 0.07% ER
Vanguard funds have a lot of overlap, while the iShares funds have none.
VOO vs. VO = 229 overlapping constituents (45% of VOO's holdings, 67% of VO's holdings) <-- this is pretty bad
VO vs. VB = 20 overlapping constituents (6% of VO's holdings, 1% of VB's holdings) <-- not bad
VOO vs. VB = 28 overlapping constituents (6% of VOO's holdings, 2% of VB's holdings) <-- not bad, but kind of weird, right?
IVV vs. IJH = 0 overlapping constituents
IJH vs. IJR = 0 overlapping constituents
IVV vs. IJR = 0 overlapping constituents
Last edited by mathjak107; 04-06-2017 at 04:23 PM..
i would not consider quarterly rebalancing a good thing . it hurts you more often than helps you .
good selling point for the service but not a good thing that often
I'd prefer automatic rebalancing annually, but that's not available. And I'm afraid that if I switched to manual rebalancing I'd either forget to do it at all (not good), or I'd do it and then also start to fiddle with other things (even worse!). So automatic rebalancing quarterly it is.
Man, we sure have a lot of completely rational investors in this thread. Good for you! I wonder how many have read Daniel Kahneman's work or his most recent book, Thinking Fast and Slow. My lawn guy keeps telling me to invest in more lawn services, I suppose he knows best........
I'm just a dummy (electrical lineman) but have been saving, reading and investing since I was 16 (I'm in my mid 50's now). I can safely say (so would warren Buffett) that 99% of the people that buy mutual funds from Edward jones will be WORSE off than if they had bought a few different (3-5) index funds from Schwaab, vanguard or fidelity. I will also say they are COMPLETE morons if they go to EJ versus doing it themselves.
Go ask 50 of your friends for 'financial advice' ask them if they think you are diversified if you own one index fund or a mutual fund that tracks the market. I know what the majority of my friends would say (most of which have PhDs and/or Masters degrees). They'd say, no you need to own multiple funds to make sure you are fully diversified, which means they don't even understand what they own. Now if they don't know the answer to that question how can you expect them to act completely rationally in a tanking market? They don't even understand the asset they own. When you see your account crashing and you don't even understand what you own your first reaction is to sell it.
Actually your friends are spot-on. Diversification means to dilute your exposure to risk and idiosyncratic risk, or nonsystematic risk is just one particular risk but there are many others. The goal of diversification is to not concentrate your risk. Probably what your friends are thinking is that any particular fund has risk associated with it. That risk is more impactful for smaller, actively managed funds. For instance, what if the fund manager is a genius and the reason the fund does well is because he/she is very very good? Let's say that person quits or gets hit by a bus. That is a risk to you, the investor. So you diversify across multiple such funds to not expose yourself to single-fund risk.
Personally, I invest in index funds so the manager-risk is minimal. But if your friends invest in non-whole market funds, or in actively managed funds, they are exposing themselves to some risk and diversifying across multiple funds would be wise.
as you see above even using index funds may provide not much diversification from just the s&p 500 even if total market funds .
in fact using vanguard's voo ,vo and vb so you have large , mid-cap and small cap coverage can be less diversified than you think because so many stocks are duplicated by vanguard and carry even more weight as opposed to buying the same index coverage from i-shares where no stocks are duplicated and over lap
Vanguard funds have a lot of overlap, while the iShares funds have none.
VOO vs. VO = 229 overlapping constituents (45% of VOO's holdings, 67% of VO's holdings)
VO vs. VB = 20 overlapping constituents (6% of VO's holdings, 1% of VB's holdings)
VOO vs. VB = 28 overlapping constituents (6% of VOO's holdings, 2% of VB's holdings)
IVV vs. IJH = 0 overlapping constituents
IJH vs. IJR = 0 overlapping constituents
IVV vs. IJR = 0 overlapping constituents
Last edited by mathjak107; 04-08-2017 at 05:17 AM..
as you see above even using index funds may provide not much diversification from just the s&p 500 even if total market funds .
in fact using vanguard's voo ,vo and vb so you have large , mid-cap and small cap coverage can be riskier because so many stocks are duplicated and carry even more weight as opposed to buying the same index coverage from i-shares where no stocks are duplicated and over lap
Vanguard funds have a lot of overlap, while the iShares funds have none.
VOO vs. VO = 229 overlapping constituents (45% of VOO's holdings, 67% of VO's holdings) <-- this is pretty bad
VO vs. VB = 20 overlapping constituents (6% of VO's holdings, 1% of VB's holdings) <-- not bad
VOO vs. VB = 28 overlapping constituents (6% of VOO's holdings, 2% of VB's holdings) <-- not bad, but kind of weird, right?
IVV vs. IJH = 0 overlapping constituents
IJH vs. IJR = 0 overlapping constituents
IVV vs. IJR = 0 overlapping constituents
I don't think VOO is the correct ETF to compare with VO.
VOO tracks the S&P 500. MGC is based on the same family of indexes as VO and VB, and is a more accurate comparison.
MGC, VO, and VB now use CSRP (Center for Research in Security Prices) Mega, Mid, and Small indexes.
Mega is intended to be, by US market capitalization, the top 70%, mid the next 15%, and small the next 13% (it doesn't capture the smallest 2%). There is minor overlap between these indexes, but I just ran a comparison using a spreadsheet and it's down towards the 1-2% range total. Possibly the comparison was done before the changeout?
This tracking error (e.g. VO and VB holding the same company) seems to be a result of the methodology used to move a company from index to index, but I'm not that concerned when it's in a very low range. iShares is a quality product, but I'd say Vanguard is, also.
Actually your friends are spot-on. Diversification means to dilute your exposure to risk and idiosyncratic risk, or nonsystematic risk is just one particular risk but there are many others. The goal of diversification is to not concentrate your risk. Probably what your friends are thinking is that any particular fund has risk associated with it. That risk is more impactful for smaller, actively managed funds. For instance, what if the fund manager is a genius and the reason the fund does well is because he/she is very very good? Let's say that person quits or gets hit by a bus. That is a risk to you, the investor. So you diversify across multiple such funds to not expose yourself to single-fund risk.
Personally, I invest in index funds so the manager-risk is minimal. But if your friends invest in non-whole market funds, or in actively managed funds, they are exposing themselves to some risk and diversifying across multiple funds would be wise.
Well we were talking about a Russell 1k index fund and adding a large cap value fund to the mix for extra diversification, but sure ok....I'll start telling my friend's they should add multiple funds to their 401ks and pay the 30-40x higher expense ratios because two four on the internet said a Russell 1k index fund isn't diversified enough when it comes to owning large cap stocks....
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
