Menu
This forum is no longer active. Please use the new forum at https://www.whitecoatinvestor.com/forum/

Small Cap Tilt

Home General Investing Small Cap Tilt

  • Avatar coug16
    Participant
    Status: Resident
    Posts: 37
    Joined: 01/17/2016

    Trying to come up with the ideal asset allocation. I’m a 4th year resident who will be starting practice in 11 months. I’m very risk tolerant and won’t sell low, I’m not worried at all about behavioral issues like that. I’d like to be aggressive as I can reasonably be for the first 10 years or so of my career. I’ve been considering the follow allocation and wanted to get some feedback. I’m currently 100% VTSAX for the last 6 years but my portfolio has grown enough it’s time to start expanding.

    50% VTSAX

    25% VTIAX

    25% VSMAX

     

    Is that too much tilt? I think my next step would be to add in REITs with 50 VTSAX, 25 VTIAX, 15 VSMAX and 10 REITS.

    #238113 Reply
    CordMcNally CordMcNally
    Participant
    Status: Physician
    Posts: 3074
    Joined: 01/03/2017

    There’s a lot of incredibly risk tolerant newer investors, mainly because of the last 10-11 years. To answer your question about how much tilt is too much, what does your personal investment policy statement say? 25% is too much for me but may not be for you. I think your asset allocation with REITs is reasonable. It isn’t what some people here would do but I certainly can’t make a great argument against it.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #238121 Reply
    Avatar Tim
    Participant
    Status: Accountant
    Posts: 3381
    Joined: 09/18/2018

    “Is that too much tilt? I think my next step would be …”
    Not sure why you are changing from VTSAX.
    The first step in portfolio design is stock/bond allocation to primarily adjust risk.

    Constantly evolving portfolio design is a “bad habit”. Nothing wrong with changing a portfolio design WHEN you risk profile changes. What are changing for?
    Equity is equity, you already have Intl, Small Caps and REITs in VTSAX. What benefit is it? Higher returns vs higher/lower volatility?

    The problem with tinkering is the urge is stronger when things don’t look so good. I think this new one is better.
    Long term, why is 25% small caps better than 100 VTSAX long term?

    Set your allocation for the long term and stick with it. It’s the “tinkering” not your design. Strong commitment.

    That said, 10% small cap would be my preference.
    Put the other 15% in bonds. Get used to it. Don’t think you need Intl on top of VTSAX. Throw in 10% REITs if you want to get used to them too.
    Keep it simple will serve you well. Unless you see benefits, no need to change.

    #238154 Reply
    Avatar Peds
    Moderator
    Status: Physician
    Posts: 4715
    Joined: 01/08/2016

    If you can explain why, then sure

    #238174 Reply
    Liked by Tim
    Avatar Panscan
    Participant
    Status: Resident
    Posts: 1152
    Joined: 03/18/2017

    why not just 100 vtsax

    #238184 Reply
    Liked by Lordosis
    triad triad
    Participant
    Status: Dentist, Small Business Owner
    Posts: 279
    Joined: 04/29/2016

    If you are very confident that small cap will outperform total market and are really risk tolerant then why not 100% small caps?    personally I try to get my stock allocation to be like VTWAX since I have no idea which sector/market will outperform.

    #238204 Reply
    Liked by Tim
    Vagabond MD Vagabond MD
    Participant
    Status: Physician
    Posts: 3486
    Joined: 01/21/2016

    There’s a lot of incredibly risk tolerant newer investors, mainly because of the last 10-11 years. To answer your question about how much tilt is too much, what does your personal investment policy statement say? 25% is too much for me but may not be for you. I think your asset allocation with REITs is reasonable. It isn’t what some people here would do but I certainly can’t make a great argument against it.

    Click to expand…

    Yup, everyone is risk tolerant, these days. Not sure why we are not hearing much about people long 120% long stocks. I mean, why stop at 100%?

    At any rate, the AA is fine for the equity exposure. The thing about tilts is that you may have to stay with them a very long time and experience and endure some long time periods in which your portfolio is underperforming the US total market…like the last ten years, for example.

    #238206 Reply
    Avatar ajm184
    Participant
    Status: Other Professional
    Posts: 662
    Joined: 07/14/2017

    Most academic studies of equity tilting show benefits around the 20 year mark.  Your expected equity tilt holding timeframe is stated at 10 years, understand you are taking uncompensated risk and/or need to lengthen your equity tilt holding period.

    #238249 Reply
    IntensiveCareBear IntensiveCareBear
    Spectator
    Status: Physician
    Posts: 244
    Joined: 12/22/2018

    …I’m very risk tolerant and won’t sell low, I’m not worried at all about behavioral issues like that. I’d like to be aggressive as I can reasonably be for the first 10 years or so of my career. …

    …currently 100% VTSAX for the last 6 years …

    Click to expand…

    100% total market index is aggressive and risk tolerant? Ok.

    …small cap index funds are pointless and merely a fund broker company marketing thing. They obviously cater to investors looking to be “aggressive” but with no real idea of how it works (much like foreign indexes cater to “sophistication”-minded investors).

    Relative to large and mid, small cap stocks have a high failure and also a high quadruple/quintuple/buyout/etc rate (at which point they are eventually no longer small caps). Buying all small caps just makes losers cancel out winners… for every Amazon, you have hundreds of duds. You are taking the good with the bad, getting barely any divi, and paying ER to do so. That doesn’t make sense unless you are selling options on VB or whatever (tough to do since barely any professional funds use small cap indexes for options… mostly just 500 and foreign indexes).

    Index total market or 500 makes sense due to stability and divi, and you can reinvest divi (or take them in retirement). For small caps or micro, they can just be owned in the total market. If you like, pick some individual small cap companies if you want to research or just buy ones you’ve heard of and try to hit it big. That is not for everyone. Grabbing index baskets of small caps makes very little sense, though; you already own them in the total market… and any “winners” become part of 500 index or large cap funds soon enough anyways. GL, you will realize what works for you.

    "Hmm, that sounds risky." - motto of the middle class

    #239123 Reply
    Zzyzx Zzyzx
    Participant
    Status: Physician
    Posts: 203
    Joined: 09/24/2018

    the only investment strategy anybody needs is to own unregulated monopolies: Apple, Amazon, Facebook, Google

    It’s psychosomatic. You need a lobotomy. I’ll get a saw.

    #239128 Reply
    The White Coat Investor The White Coat Investor
    Keymaster
    Status: Physician
    Posts: 4656
    Joined: 05/13/2011

    Did you see this podcast? He talks about factor investing.

    https://www.whitecoatinvestor.com/dare-to-be-dull-with-allan-roth-podcast-113/

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #239356 Reply

Reply To: Small Cap Tilt

In case of a glitch or error, please save your text elsewhere, clear browser cache, close browser, open browser and refresh the page.

Notifications Mark all as read  |  Clear