5 ms·

I think his point is that most index funds are weighted towards large caps and ignore small ones. With more and more money pouring in, it creates an inflation i

I think his point is that most index funds are weighted towards large caps and ignore small ones. With more and more money pouring in, it creates an inflation in value there whereas the small caps get ignored. That is the most logical interpretation I can draw out of his statement (although I am a 100% index investor myself).

swsieber 7y ago
Huh. I thought standard index fund advice was to split up you investments. I have 25% (of my investments) in a small cap fund. Does that count as ignored, or am I an outlier?
- basch 7y ago
  A total market index fund is proportioned by market cap. As the large cap gets larger, it proportionally becomes a higher percent of the pie. If large cap is overvalued, youre owning less small cap than "true price market cap."
  - swsieber 7y ago
    Ah got it. So I by sharding my investment into several different different targeted funds (with auto-rebalancing) avoid that issue.... I think.
    - the_gastropod 7y ago
      You’re trading one issue for another. By holding x% of a small cap fund, where x does not equal the actual market proportion for small cap funds, you’re choosing to over or under weight that asset class.
    - basch 7y ago
      If, for example, you thought small caps were under valued, and you wanted to tilt small cap, you could keep doing exactly what youre doing, and just add a small investment into small caps on the side. So at Schwab, if you hold Schwab Target 2060 Index Fund (SWYNX) you can tilt by making sure Schwab U.S. Small-Cap ETF (SCHA) is 10% of your portfolio. At the moment, SCHA is 6.8% of SWYNX, so you would need an additional 3.2%. I dont know if you even need autobalancing for something so simple, just fix your allocation every time you make a contribution.
markbnj 7y ago
It seems like that point doesn't stand, though. In the boggleheads thread linked elsewhere several posters seem to show that there is actually more small cap diversity in the index funds.

swsieber 7y ago

Huh. I thought standard index fund advice was to split up you investments. I have 25% (of my investments) in a small cap fund. Does that count as ignored, or am I an outlier?

basch 7y ago
A total market index fund is proportioned by market cap. As the large cap gets larger, it proportionally becomes a higher percent of the pie. If large cap is overvalued, youre owning less small cap than "true price market cap."
- swsieber 7y ago
  Ah got it. So I by sharding my investment into several different different targeted funds (with auto-rebalancing) avoid that issue.... I think.
  - the_gastropod 7y ago
    You’re trading one issue for another. By holding x% of a small cap fund, where x does not equal the actual market proportion for small cap funds, you’re choosing to over or under weight that asset class.
  - basch 7y ago
    If, for example, you thought small caps were under valued, and you wanted to tilt small cap, you could keep doing exactly what youre doing, and just add a small investment into small caps on the side. So at Schwab, if you hold Schwab Target 2060 Index Fund (SWYNX) you can tilt by making sure Schwab U.S. Small-Cap ETF (SCHA) is 10% of your portfolio. At the moment, SCHA is 6.8% of SWYNX, so you would need an additional 3.2%. I dont know if you even need autobalancing for something so simple, just fix your allocation every time you make a contribution.

markbnj 7y ago

It seems like that point doesn't stand, though. In the boggleheads thread linked elsewhere several posters seem to show that there is actually more small cap diversity in the index funds.