Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Small cap, REIT and Tips needed in 401?
Old 06-29-2010, 09:43 PM   #1
Recycles dryer sheets
 
Join Date: Jun 2008
Posts: 63
Small cap, REIT and Tips needed in 401?

My AA is 60% equities (48% of that split between VG total stock index and S&P index and 12% VG International index). The 40% is in the VG total bond index.

Questions, how important is it to have some small cap and Reit exposure on the equity side and Tips exposure on the bond side?

I am 51 and plan to contribute about $2,500 each month combined between my account and my spouses for another 10 years hopefully. Our total combined portfolio is 510k.

Thank you.
__________________

__________________
tsturbo is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-30-2010, 12:21 AM   #2
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 882
Small cap value and REITs have shown higher returns and less than perfect correlation with TSM. The theory of titlting here is that you can further diversify your equity allocation and increase the expected return on equity by adding these slices. This can allow you to reduce your total equity allocation and achieve the same expected return of the overall portfolio with less equity risk and, hopefully, less "fat tail" risk. One of the consequences is that your equity value will demonstrate some tracking error.

Historical performance of these sectors has been consistent with this theory. It is anyone's guess as to whether the same conditions will hold in the future.

I personally don't worry about the tracking error because I look at the total portfolio volatility and the SCV and TIPS have reduced the overall volatility for me because I have reduced equity from 50% to 40%. When I was in the accumulation phase I was heavily tilted to SCV and MCV. The average return of these two sectors was 15% per year for almost 15 years. But the tracking error was quite large - not for the faint of heart.
__________________

__________________
jebmke is offline   Reply With Quote
Old 06-30-2010, 03:16 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Jun 2010
Location: France
Posts: 1,195
My portfolio is 45% in stocks (30% if you include guaranteed future DB pensions) and of those, nearly half are in small caps or emerging markets. I just don't see the potential for growth in US and European blue chips.
__________________
Age 56, retired July 1, 2012; DW is 60 and working for 2 more years. Current portfolio is 2000K split 50 stocks/20 bonds/30 cash. Renting house, no debts.
BigNick is offline   Reply With Quote
Old 06-30-2010, 06:06 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RonBoyd's Avatar
 
Join Date: Dec 2007
Location: Denver, Colorado
Posts: 5,280
Quote:
Originally Posted by jebmke View Post
The theory of titlting
??
__________________
"It's tough to make predictions, especially when it involves the future." ~Attributed to many
"In theory, there is no difference between theory and practice. But, in practice, there is." ~(perhaps by) Yogi Berra
"Those who have knowledge, don't predict. Those who predict, don't have knowledge."~ Lau tzu
RonBoyd is offline   Reply With Quote
Old 06-30-2010, 11:34 AM   #5
Thinks s/he gets paid by the post
DblDoc's Avatar
 
Join Date: Aug 2007
Posts: 1,224
Quote:
Originally Posted by tsturbo View Post
Questions, how important is it to have some small cap and Reit exposure on the equity side and Tips exposure on the bond side?
Thank you.
Its not important. Really. The two biggest determinants of your portfolio growth by far are 1) How much you save and 2) Your equity:bond ratio. Everything beyond that is fiddling at the edges. Now if you believe that SC and REIT's have some negative correlation with your other equity holdings long term, have the time and interest in keeping track and rebalancing 2 more slices, and have room in your tax deferred account as those classes are tax inefficient then have at it. Ditto for TIP's.

DD
__________________
At 54% of FIRE target
DblDoc is offline   Reply With Quote
Old 06-30-2010, 11:46 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Not sure why SC would be particularly tax-inefficient, but REITs are.
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Old 06-30-2010, 12:04 PM   #7
Full time employment: Posting here.
ESRwannabe's Avatar
 
Join Date: Mar 2010
Posts: 628
I would not buy REITs right now. Last time I looked the REIT index had a yield of like 2.5% if you exclude return of capital. Going by memory here... by law REITs have to give back 90% of profits in dividends. So, a 2.5% yield is pathetic. I would not buy REITs until the yield, excluding return of capital, is at least 4%, which is just a subjective number I pulled out of thin air. I choose that because it seems reasonable as a minimum. FYI, you can buy individual dividend growth stocks like KO and PEP with yields over 3% right now.

Many bogleheads advocate a small value tilt. Maybe it will work out. Hard to say. It is probably an ok risk to take based on the Famma & French research.
__________________
ESRwannabe is offline   Reply With Quote
Old 06-30-2010, 01:57 PM   #8
Thinks s/he gets paid by the post
DblDoc's Avatar
 
Join Date: Aug 2007
Posts: 1,224
Quote:
Originally Posted by HFWR View Post
Not sure why SC would be particularly tax-inefficient, but REITs are.
According to the bogleheads wiki Principles of Tax-Efficient Fund Placement - Bogleheads - moderately inefficient, better if held as an ETF.

DD
__________________
At 54% of FIRE target
DblDoc is offline   Reply With Quote
Old 06-30-2010, 04:30 PM   #9
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 882
Quote:
Originally Posted by RonBoyd View Post
??
Value Tilting - Stock - Bogleheads
__________________

__________________
jebmke is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Any good small-cap ETFs? Lawrence of Suburbia FIRE and Money 8 07-21-2009 01:02 PM
Recommendation on Small Cap Mutual Fund(s) needed. Disappointed FIRE and Money 13 03-16-2008 05:03 PM
Bias toward small cap and value - how much? Maurice FIRE and Money 30 02-11-2008 06:35 PM
Do you believe in the small cap value phenomenon? wildcat FIRE and Money 40 06-17-2007 12:16 AM
Need for International Small Cap ? mb FIRE and Money 11 06-15-2007 08:09 PM

 

 
All times are GMT -6. The time now is 01:31 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.