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Factors: Small and Value- worth it or fools errand?

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  • Factors: Small and Value- worth it or fools errand?

    I started hard core investing in about 2010. I have a tilt toward small and value. Value is in my Roth IRAs, and Small in both Roth and taxable (Vanguard Tax-managed small cap index fund). I will stick with this, since I have done it for 9 years now and know the data but I wonder if it is a mistake. I know savings rate is more important but still wonder if this small and value tilt is needless complexity. The rest of my portfolio is essentially in the 3 fund bogleheads portfolio and my wife is all 3 fund.

    Anyway, my question is: Small and Value factors. Is this a fools errand or worth it?

    I know value sometimes takes decades to eventually outperform (or at least it once did) but  wonder if the added costs (albeit small with VG) and the fact that everyone knows these factors outperformed in the past + the added risk mean this is dumb.

    Thanks for the wisdom.

     

  • #2
    I'll let you know in 30 years.

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    • #3
      I don't do it.
      Didn't we just have this thread?

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      • #4
        Sorry. I will look for the other tread.

        Comment


        • #5
          You posted on it:

          https://www.whitecoatinvestor.com/forums/topic/small-cap-and-value-premium-not-worth-it/

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          • #6
            Head slap, Good lord, here it is!

            https://www.whitecoatinvestor.com/forums/topic/small-cap-and-value-premium-not-worth-it/page/2/#post-221991

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            • #7
              I just mirror VTSAX.

              Most people who do it do so with around 10% it seems. So even if it beats the rest of the market by 2-3% it really doesn't budge the needle much increasing my return by .2-.3%. And that is a big if.

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              • #8
                Some people do it and some people don't. Will it work out? Hard to say. Just make sure your asset allocation stays reasonable and you'll be fine.

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                • #9
                  I do it.

                  From a value perspective, all things equal, if one company has a lower P/E than another, you're getting more earnings for your money.  However, all things are never equal. 

                  In my anecdotal experience, smaller companies are hungrier.  Large companies plateau.  For what that's worth (probably not a lot :lol: ).

                  I don't expect it to wildly outperform, but if if there is a reasonable possibility of a half point of extra growth over an investing career, I'll take it.

                  Comment


                  • #10
                    Ok, I will bite... seems like a good idea & to the OP, I presume you have this mutual fund holding in a taxable space, right?  (as implied by the tax-managed moniker).

                    So then I looked at the holdings and something like 4-5% is in real estate, not individual stocks, but freakin' VNQ.  C'mon a REIT in taxable space?  And not pick and choose REIT stock, but just bulk REIT?

                    https://investor.vanguard.com/mutual-funds/profile/overview/VTMSX/portfolio-holdings

                    Then I looked at VNQ, and it's not terribly 'value' and not terribly 'small' (actually leaning toward mid-large cap Growth).  So I would say I find VTMSX does not follow its name as well as for instance VBR:

                    http://portfolios.morningstar.com/fund/summary?t=VTMSX

                    http://portfolios.morningstar.com/fund/summary?t=VBR

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