Adding to Small cap fund in 2024

[mikes425]

I'm gradually transitioning some $ that's been sitting in ST bond funds into equity funds, in my roughly 50/50 AA PF. I've endured the NAV losses in them over the last few years (did not exit bond funds 1-2 years ago..just have "hung" in there with them) but am feeling there's some growth potential for equities in 2024.
Occasional FA, on this question suggested just throwing any excess cash into SCHX(Large Cap) (not reducing bond fund allocation) i.e. put some $$ that's getting about 5% in MM - into equity -- which would increase my equity exposure by only about 1% So we're talking about "at the margins" stuff here.
Have gone ahead and done some of this investment into SCHX -- but thinking maybe i should not exclude adding to my stake in small cap FNDA. I've seen some positive sentiment about that sector for 2024. Interested in any other thoughts about this.



Thanks!

 

[street]

I think it's a great idea but again I do most things wrong form from the great financially minds on the site.

I have about 15 different funds I'm invested in from small, mid, large, growth, value, equity, etc., etc....... I diversified and I'm all ovah the spectrum.

It really has been an interesting how each have their unique traits as finds. One might be good one year but the next it does good.

So, IMO I would invest in small cap. I will say the experts will chime in and give the best advise which you might want to follow.

Good Luck investing.

 

[mrfeh]

I'm gradually transitioning some $ that's been sitting in ST bond funds into equity funds, in my roughly 50/50 AA PF. I've endured the NAV losses in them over the last few years (did not exit bond funds 1-2 years ago..just have "hung" in there with them) but am feeling there's some growth potential for equities in 2024.
Occasional FA, on this question suggested just throwing any excess cash into SCHX(Large Cap) (not reducing bond fund allocation) i.e. put some $$ that's getting about 5% in MM - into equity -- which would increase my equity exposure by only about 1% So we're talking about "at the margins" stuff here.
Have gone ahead and done some of this investment into SCHX -- but thinking maybe i should not exclude adding to my stake in small cap FNDA. I've seen some positive sentiment about that sector for 2024. Interested in any other thoughts about this.



Thanks!

I think you should stop reading about "sentiment" and ignore any "feelings" you have about future market changes.

Pick an AA and stick to it. Rebalance when necessary.

 

[DrRoy]

In the last 1 year, the Russel 2000 is up 18% and the S&P 500 is up 31%.

 

[Qs Laptop]

Have gone ahead and done some of this investment into SCHX -- but thinking maybe i should not exclude adding to my stake in small cap FNDA. I've seen some positive sentiment about that sector for 2024. Interested in any other thoughts about this.

Thanks!

Small caps have been a disaster the past 3 years, until the past 6 months or so.

In a rising interest rate environment like we are going to have in the next year or more, small caps usually appreciate nicely. Since small cap companies typically need debt financing the cost of money is lowered for them which should show up as increased earnings. Increased earnings, increased stock price.

Looks like you are at Schwab. The FNDA fund has over 1,000 companies in it. That means you are getting exposure to a lot of losers. This is especially true in small cap index funds. Is there another fund at Schwab that concentrates on the top 100 small cap companies?

I recently put some money into XMHQ. You might want to take a look at it. Riskier than FNDA for sure, but the reward is much more.

 

[tutan]

VBR (Vanguard Small Cap Value ETF) logged the same return as FNDA since FNDA’s inception in 2013 but VBR has a lower expense ratio at 0.07% vs. 0.25%.
Another one to consider is AVUV - Avantis US Small Cap Value ETF. It has been around since 2019. According to portfoliovisualizer.com, so far its return is higher with the same expense ratio at 0.25%. Also it is less correlated to the S&P 500.

 

[FiveDriver]

Keep an eye on some of the iShares Russell ETF's such as IWF or even IWM.....just to have a stake in the ground.

The alarm bells for ST Bond funds started ringing back in March 2022.

 

[OldShooter]

... am feeling there's some growth potential for equities in 2024. ... thinking maybe i should not exclude adding to my stake in small cap FNDA. I've seen some positive sentiment about that sector for 2024. Interested in any other thoughts about this. ...

A very common approach to investing.

You asked for "thoughts." Here is a thought from investment guru William Bernstein: “You are not as good looking, as charming, or as good a driver as you think you are. The same goes for your investing abilities. In an environment filled with incredibly smart, hard-working, and well-informed participants the smartest trading strategy is not to trade at all.”

Here is a way to test the usefulness of your "feelings" without actually losing any money:

Start with any quilt chart (https://www.callan.com/periodic-table/) and cover all but the leftmost column with a sheet of paper. Now go down that leftmost column list of asset classes and write on your paper what they will do in the subsequent year. When you are satisfied with your prediction slide the paper one column to the right and compare your ideas with reality. Keep doing this across the chart, isolating each column, then predicting the subsequent year's results. If this doesn't convince you that your "feelings" are not a good investment guide, IMO you are probably not paying attention. Listen to @MrFeh. You cannot reliably pick sector performance nor can anyone else.

And here is a "thought" from investment guru Burton Malkiel " ... The indexing strategy is the one I recommend most highly. At least the core of every portfolio ought to be indexed. I recognize, however, that telling most investors that there is no hope of beating the averages is like telling a six year old that there is no Santa Claus. It takes the zing out of life."

 

[target2019]

VBR (Vanguard Small Cap Value ETF) logged the same return as FNDA since FNDA’s inception in 2013 but VBR has a lower expense ratio at 0.07% vs. 0.25%.
Another one to consider is AVUV - Avantis US Small Cap Value ETF. It has been around since 2019. According to portfoliovisualizer.com, so far its return is higher with the same expense ratio at 0.25%. Also it is less correlated to the S&P 500.

I was wondering at OP's two funds mentioned, SCHX and FNDA. They each have an expense ratio of 0.25, so 4-5X's greater expense than expected. For examble SCHB, VBR, and other passive index choices.

 

[GrayHare]

FWIW, I've been trimming equities this month due to their run up since November and splitting the proceeds between bonds and cash.

 

[street]

A very common approach to investing.

You asked for "thoughts." Here is a thought from investment guru William Bernstein: “You are not as good looking, as charming, or as good a driver as you think you are. The same goes for your investing abilities. In an environment filled with incredibly smart, hard-working, and well-informed participants the smartest trading strategy is not to trade at all.”

Here is a way to test the usefulness of your "feelings" without actually losing any money:

Start with any quilt chart (https://www.callan.com/periodic-table/) and cover all but the leftmost column with a sheet of paper. Now go down that leftmost column list of asset classes and write on your paper what they will do in the subsequent year. When you are satisfied with your prediction slide the paper one column to the right and compare your ideas with reality. Keep doing this across the chart, isolating each column, then predicting the subsequent year's results. If this doesn't convince you that your "feelings" are not a good investment guide, IMO you are probably not paying attention. Listen to @MrFeh. You cannot reliably pick sector performance nor can anyone else.

And here is a "thought" from investment guru Burton Malkiel " ... The indexing strategy is the one I recommend most highly. At least the core of every portfolio ought to be indexed. I recognize, however, that telling most investors that there is no hope of beating the averages is like telling a six year old that there is no Santa Claus. It takes the zing out of life."

Excellently explained and approach to investing.

 

[TheWizard]

...And here is a "thought" from investment guru Burton Malkiel " ... The indexing strategy is the one I recommend most highly. At least the core of every portfolio ought to be indexed. I recognize, however, that telling most investors that there is no hope of beating the averages is like telling a six year old that there is no Santa Claus. It takes the zing out of life."

I completely agree.
However, there are more than a dozen different indices with funds tracking them. A lot more than just the S&P 500 and TSM.

So while my largest holding is VOO (S&P 500), I've also done okay with my holdings in VGT and QQQ...

 

[OldShooter]

... However, there are more than a dozen different indices with funds tracking them. A lot more than just the S&P 500 and TSM. ...

Yes. There is definite confusion and ambiguity here. The Nobel prize winners that have studied stocks say it this way: "You have to hold the market portfolio." This means literally everything. VT/VTWAX, for example.

This has gotten somewhat watered down, first to just the US market (VTSAX, for example) and then to the plethora of S&P 500 funds which are so highly correlated to the US market as to be good surrogates.

Then the hucksters arrived, using the word "index" wherever possible and attempting to free ride on the work of people like Eugene Fama, Burton Malkiel, Charles Ellis, et al. In fact, QQQ and VGT are not index funds in the classical sense at all. They are technology sector funds and do not provide the market diversification that the experts advise. People holding them in the past few years have done well, but not because they are what the experts mean when they imprecisely say "index funds." (And of course, people holding other sector "index" funds have done abysmally.)

There are actually thousands of indexes, all competing to be selected and collect fees from funds that are not even close to holding the market portfolio. I think there are a hundred flavors of just the ACWI and probably a similar number of EAFE flavors. That is before we start counting S&P and Russell offerings.

Nassim Taleb says "Don't tell me what you think. Show me your portfolio." FWIW DW's and my equity tranche is about 95% VTWAX. We do hold the market portfolio.