The 4 Pillars - a question

[smooch]

I am plowing through Bernstein's book and I have many questions, but I'll just ask one now. He gives a sample portfolio that starts with 35% U.S. stock market (the "total market," not just the S&P 500). What is the difference? What in Vanguard would give me the total market?

Thanks!

 

[Mister Bill]

If you are looking at the "total" US Stock Market, Vanguard offers the Vanguard Index Total Stock Market Fund (VTSMX). 

I've used the Vanguard Vipers (VTI) ETF to give me exposure to the "total US market".

Hope this helps.

Mister Bill

 

[ronin]

As to the difference, the 500 are all large cap stocks while the TMI contains mid and small caps in about 25% of its make-up.

 

[smooch]

OK, thanks. I see the difference. I'll check out those 2 funds.

 

[Spanky]

The correlation and return between the S&P500 and total market is very, very close despite a minor difference in composition.

 

[ESRBob]

The correlation and return between the S&P500 and total market is very, very close despite a minor difference in composition.

It points out the huge weight that the biggest 20 or so 'megacaps' have on all the US indices that include them. I don't go for the Total cap weighted indexes, but slice up and index the small (either microcap or small -- the smallest 4% or 12% or so of U.S. stocks) and large, with value tilts on both. It overweights small vis-a-vis their capitalization, but my goal is to have a portfolio whose slices interact well together to reduce volatility at an acceptable yield, not to 'own the market' in the same proportions that everyone else does. Basically, it's Modern Portfolio Theory, with a smidgen of Efficient Frontier thinking tossed in for spice.

 

[Nords]

It points out the huge weight that the biggest 20 or so 'megacaps' have on all the US indices that include them.  I don't go for the Total cap weighted indexes, but slice up and index the small (either microcap or small -- the smallest 4% or 12% or so of U.S. stocks) and large, with value tilts on both. 

And.... away we go! Anyone care to start up the "value premium" debate for smooch?

 

[laurence]

Nords, quck, I'm sure you can put together an eloquent synopsis and head that off!

 

[cute fuzzy bunny]

I'm not Nords, but I could play him in a made-for-tv movie if I have some time to take a few surfing lessons and dust off my tae kwon do skills.

Bad stocks are good to own. Good stocks are bad to own. Bad stocks really arent that bad and pay good dividends. Much of historical returns consist of good dividends. Good stocks arent really that good and dont pay dividends. See the part about most historical returns consisting of dividends. Good stocks dont usually stay good stocks for long.

Value has higher volatility, but a higher income stream meaning you need to sell shares less frequently.

TSM has a slightly lower return than the s&p500 with slightly less volatility, over long periods of time.

Owning half s&p500 and half "vanguard extended market" gives you more of a balance of large cap with mid/small cap.

Owning large and small cap value indexes or cheap managed funds gives you high income, good appreciation, and higher long term portfolio values and safe withdrawal rates.

 

[smooch]

TH,

I actually recognize most of that from the book. I have it from the library now, but I'm going to purchase it, because I'll definately need a second reading. I called Vanguard today for forms to start the moving process. This board has soooo much good information!

 

[cute fuzzy bunny]

If you do a search on "book report four pillars" I wrote a lengthy synopsis and we had some discussion around it, might be helpful for those who dont want to go through the whole read

 

[Arin38]

If you do a search on "book report four pillars" I wrote a lengthy synopsis and we had some discussion around it, might be helpful for those who dont want to go through the whole read

Just read your book report and I give it an A-. Well done. Help me with one question which I'm sure is dumb:

Buy a portfolio consisting of 60% total stock market and 40% short term corporate or short term bond index, perhaps moving some towards intermediate bonds over time to take advantage of rising interest rates while protecting yourself from short term interest rate risk. Add 5-10% reits, 5-10% foreign stocks, 10-20% small cap and large cap value stocks, 3-5% emerging market stocks, 3-5% foreign bonds, and/or 3% precious metals to reduce volatility, increase returns, and give yourself something to do.

I assume that the 5-10% REITS.....etc is a portion of the 60% equities So if I take the lower end of each range, I might have 30% in REITS, foreign, small cap etc, 30% in total market equities and 40% ST bonds Is that the idea?

Thanks. You guys are good.

 

[Mr._johngalt]

If you do a search on "book report four pillars" I wrote a lengthy synopsis and we had some discussion around it, might be helpful for those who dont want to go through the whole read

I don't care to read the book or the synopsis.

JG

 

[cute fuzzy bunny]

I'd rather you didnt anyway.

 

[Spanky]

I assume that the 5-10% REITS.....etc is a portion of the 60% equities So if I take the lower end of each range, I might have 30% in REITS, foreign, small cap etc, 30% in total market equities and 40% ST bonds Is that the idea?

Berstein's 60/40 Portfolio:
Large Vanguard 500 Index VFINX 12.0%
Large Value Vanguard Value Index VIVIX 15.0%
Small Vanguard Small Index NAESX 3.0%
Small Value Vanguard Small Value Index (IRA) VISVX 9.0%
Real Estate Vanguard REIT VGSIX 6.0%
Small Value Vanguard Precious Metals VGPIX 1.8%
Small Value Vanguard European Stock Index VESIX 3.0%
Small Value Vanguard Pacific Stock Index VPACX 3.0%
Emerging Markets Vanguard Emerg Mkt Stk Idx VEIEX 3.0%
Small Value Vanguard International Value VTRIX 4.2%
Bonds fixed-income% is 40%

 

[HFWR]

If you do a search on "book report four pillars" I wrote a lengthy synopsis and we had some discussion around it, might be helpful for those who dont want to go through the whole read

Read the whole thing in one sitting................

 

[cute fuzzy bunny]

The book or the synopsis?

If you read the entire book in one sitting without losing your will to live or developing narcolepsy, I am most impressed!

 

[HFWR]

I feel that way about most "popular" means of entertainment, like reality TV and/or hip-hop...

BTW, the book!

 

[smooch]

I read the book report. Thanks, it was very well done. I need to read the book again, but now I'm into "John Bogle on Investing". I'm sure I'll need to read that slowly.