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Mid-cap ETF
Old 09-04-2009, 01:14 PM   #1
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Mid-cap ETF

I am under age 20 and have decided to allocate 22% of my portfolio to Mid-cap stocks. I was considering the Vanguard ETF "VO"

Just looking to get some thoughts on this ETF and seeing whether or not someone would recommend a different mid-cap fund.

Thanks,

Tom
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Old 09-04-2009, 01:41 PM   #2
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Why mid-cap? Why not small-cap value? Why not emerging markets small cap value? Just curious.

For a good list of asset classes and good ETFs or funds in each category go to:
DFA vs. Vanguard and be sure to click through the HERE links to get the details.

BTW, the actual market weights for mid-cap stocks is 19%, so 22% is about an average weight for mid-caps. That is, you are neither overweighted nor underweighted to mid-caps if you decide to have 22% mid-caps. You might as well buy total stock market index instead.
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Old 09-07-2009, 12:20 PM   #3
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This is the asset allocation chart I was using after taking a "quiz" online...

Large Cap 28.00%
Mid Cap 22.00%
Small Cap 17.00%
Foreign Stocks 18.00%
Bonds 8.00%
Cash 7.00%
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Old 09-07-2009, 12:58 PM   #4
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Here is a quiz:

1. If you bought a Total Stock Market Index fund such as the ETF called VTI, what percent of Large cap, mid cap and small cap would you have?

2. If you bought just 2 funds: VTI and VBR, what ratio of the two would you need to get the percentages you listed for Large, Mid, and Small cap?

3. Have you read Larry Swedroe's The Only Guide to a Winning Investment Strategy That You'll Ever Need ?

4. Since foreign stocks can be Large, Mid, or Small Cap, how does the 18% Foreign Stocks you listed figure into the Large, Mid, and Small Cap percentages that you listed?
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Old 09-07-2009, 11:41 PM   #5
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I have not read that book. I have read "The Smartest Investment Book You'll Ever Read" and "The Smartest 401(k) Book You'll Ever Read" by Daniel Solin.

And the Large, Mid, and Small cap percentages are domestic.
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Old 09-08-2009, 07:40 PM   #6
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I have not read the books you mentioned, so they may have some of what I write next already explained in them:

Your chosen asset allocation falls within the normal broad range between

(a) Total Stock Market weights for large, mid, small stocks and

(b) A small-cap and value-tilted or overweighted asset allocation composed of half large cap, half small cap, half blend, half value, half domestic and half foreign (of the equities). (That's a lot of half's, but they don't overlap.)

Several folks would recommend (b) over any other kind of equity asset allocation. It might be helpful to read the book I mentioned as well as Rick Ferri's "All About Asset Allocation" and Wm Bernstein's "The Four Pillars of Investing". One can also get the same ideas from some of the "must-read" articles at FundAdvice.com - Home

That said, there is nothing wrong with your asset allocation, but I'm uncertain that taking a quiz is a good way to come up with an asset allocation. Swedroe's book helps you come up with an asset allocation and explains the reasons why that AA is a good one for you.

Then once you have an asset allocation conviction, how do you fulfill it? It will depend on the funds available in your 401(k) and other factors such as costs, the kinds of accounts available to you, asset location, etc.

Good luck!
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Old 09-09-2009, 11:28 PM   #7
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Thanks alot! I'll look into getting those books!
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