4 ms·

Lower returns isn't accurate. Small Cap Value as an asset class has actually outperformed the returns of the total market over the long term: https://www.portfo

Lower returns isn't accurate. Small Cap Value as an asset class has actually outperformed the returns of the total market over the long term: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=1oHzpZPh8u9im2OmpsbUJk https://www.portfoliovisualizer.com/backtest-asset-class-all... I know there's consensus that smaller caps are actually higher beta and thus higher risk. However, I don't believe there's any consensus on value being lower beta, less risky, or less returns. After all, large cap and mid cap value also outperformed total market: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=2bIoPWBkJIaQs9qzRRXERj https://www.portfoliovisualizer.com/backtest-asset-class-all...

arduanika 1y ago
Interesting. Added a * to my comment. I think it's still accurate to say that you'll lag the total market during the run-up, right? So anyone buying value should be prepared for that feeling of FOMO, in exchange for long-term peace of mind. Then again, the beta on your small cap portfolio is 1.04 (higher than your mid/large cap portfolio .93). This matches my intuition: going for value means lower beta, but going small means higher beta. So for small cap value, these effects sort of cancel out and you end up slightly above 1. Altogether, small cap value is an interesting choice. Not bad.
- reducesuffering 1y ago
  No that wouldn't be accurate either, as a total market bull run like '91 - '96 or definitely '01 - '07 still had value outperforming. There's enough uncorrelated returns that it's too tough to say how it will behave during each decade.
  - arduanika 1y ago
    Huh, I guess that's so. Well, can we at least agree on the part about most structured products being a rip-off?
    - reducesuffering 1y ago
      Yes, I agree 99% of financial funds are rip offs with 1% fees and dubious payout. Personally, only 0.10% or less total market index funds make sense to me, but Small Cap Value as a low cost index strategy could be an ok addition.

arduanika 1y ago

Interesting. Added a * to my comment. I think it's still accurate to say that you'll lag the total market during the run-up, right? So anyone buying value should be prepared for that feeling of FOMO, in exchange for long-term peace of mind. Then again, the beta on your small cap portfolio is 1.04 (higher than your mid/large cap portfolio .93). This matches my intuition: going for value means lower beta, but going small means higher beta. So for small cap value, these effects sort of cancel out and you end up slightly above 1. Altogether, small cap value is an interesting choice. Not bad.

reducesuffering 1y ago
No that wouldn't be accurate either, as a total market bull run like '91 - '96 or definitely '01 - '07 still had value outperforming. There's enough uncorrelated returns that it's too tough to say how it will behave during each decade.
- arduanika 1y ago
  Huh, I guess that's so. Well, can we at least agree on the part about most structured products being a rip-off?
  - reducesuffering 1y ago
    Yes, I agree 99% of financial funds are rip offs with 1% fees and dubious payout. Personally, only 0.10% or less total market index funds make sense to me, but Small Cap Value as a low cost index strategy could be an ok addition.