broad market ETF versus mix of large/mid/small-cap ETFs?

[Lorenzo]

My former FA had the US equity portion of my tIRA and Roth distributed over a mix of 3 funds, approximately 84% large-cap, 8% mid-cap and 8% small-cap, specifically SCHX, SCHM and SCHA, which he rebalanced annually. I used one of those portfolio visualizer tools to compare this to a total market fund, specifically SCHB, and sure enough, there is little difference in performance in the past 10 years. Any idea why my FA might have preferred the mixed portfolio rather than all SCHB? I see that SCHB has only existed since 2009, so one possibility is that he created the portfolio before then and just never saw a reason to change it. And sure, a cynic might suggest that the added complexity looks more impressive to FA clients like me. Anyway, Is there a reason I should consider consolidating the three into SCHB now? Ease of rebalancing, perhaps? Small caps seem to be having a moment right now after all these years, and maybe that is exactly what my lazy FA with his infinite time horizon and perpetual "stay the course" advice had in mind. I parted ways with the FA a couple of years ago but haven't made major changes to the portfolio.

I think I'd like to expand this into a critique-my-portfolio thread, but this was my first question.

 

[OldShooter]

... and sure, a cynic experienced investor might suggest that the added complexity looks more impressive to FA clients like me. ...

FTFY

Anyway, Is there a reason I should consider consolidating the three into SCHB now? ...

Simplicity. SCHB is fine. I would suggest VTI because it is a bit broader. Be sure to season to taste with an international fund, maybe 30%

 

[NeilDH]

I’ll be curious about the answers, too — specifically about the allocation to small and mid-caps. I have even lower percentages in those and have been wondering if I should boost them. (Also international as OldShooter just said.)

 

[Lorenzo]

Simplicity. SCHB is fine. I would suggest VTI because it is a bit broader. Be sure to season to taste with an international fund, maybe 30%

Right, VTI is roughly the same in the Vanguard flavor. As for international, I do have a portion of my total portfolio there. The initial question concerned only the US equity portion.

 

[COcheesehead]

I would guess it was your FA’s attempt at capturing the total market because the percentages are close to that. Not an approach I would pay for because it’s easily obtained elsewhere for less.

 

[OldShooter]

... the allocation to small and mid-caps. I have even lower percentages in those and have been wondering if I should boost them. ...

Do you have a multiyear track record of making accurate predictions of the future? ... I didn't think so.

The solution to your dilemma is to do what Eugene Fama and many other academics recommend: Buy the "market portfolio." IOW, everything. VT for example. Or as Jack Bogle recommended: "Don't go looking for the needle in the haystack. Buy the haystack."

 

[TheWizard]

In your taxable account, it's good to have TLH partners.
New money in taxable goes into VOO. If we have a correction, I'll sell recently purchased VOO lots and buy a chunk of VTI. If the correction deepens, I'll sell that chuck of VTI and buy VV.

I do something similar with VGT, QQQ, and MGK, and maybe VUG...

 

[Al18]

I could understand if Small Caps had an outstanding year, beating the SP500 that you would make more money if you held the 3 separate funds. But since small caps are just 6% of SCHB, you would need a lot of money invested in these funds to notice the difference. Run the numbers yourself at portfoliovisualizer.com

 

[SecondCor521]

Any idea why my FA might have preferred the mixed portfolio rather than all SCHB?

1. The cynical reason you mentioned.
2. Another cynical reason is if the FA earned fees or commissions in the process of rebalancing.
3. Perhaps an effort to slice-and-dice the market to overweight/underweight by market cap in an effort to actively invest and beat the market. Unlikely to be this, though, if the FA didn't otherwise churn your account.

Anyway, Is there a reason I should consider consolidating the three into SCHB now?

A reason to *not* consolidate would be the potential capital gains and associated CG taxes. A reason *to* consolidate would be simplification.

 

[Jerry1]

There is some concern with the weighting of the entire market being to just a few companies (magnificent seven). Not sure about the FA, but I've wondered about putting some limit on the amount of the magnificent seven and splitting up the market into a few different funds (small cap, mid cap and large cap) would allow for adjusting the exposure. Of course, that's market timing and your FA handled that through rebalancing.

 

[engineernerd]

[snip] Any idea why my FA might have preferred the mixed portfolio rather than all SCHB? I see that SCHB has only existed since 2009, so one possibility is that he created the portfolio before then and just never saw a reason to change it.

It's not that. None of those funds has an earlier inception date than Nov 2009.

And sure, a cynic might suggest that the added complexity looks more impressive to FA clients like me. Anyway, Is there a reason I should consider consolidating the three into SCHB now? Ease of rebalancing, perhaps? [snip]

Who knows why your FA chose those funds, maybe he liked to track which category was doing best or worst at any particular time. It does seem he may have underweighted mid-caps and overweighted large-caps, though different websites show different numbers so it's hard to pin down the actual weights.

Those aren't bad funds, but one reason to switch to SCHB (besides simplicity) might be that SCHA and SCHM have 0.04% expense ratios, a bit higher than SCHB's 0.03%.

 

[TheWizard]

There is some concern with the weighting of the entire market being to just a few companies (magnificent seven). Not sure about the FA, but I've wondered about putting some limit on the amount of the magnificent seven and splitting up the market into a few different funds (small cap, mid cap and large cap) would allow for adjusting the exposure. Of course, that's market timing and your FA handled that through rebalancing.

In recent years, the Magnificent Seven have actually outperformed the rest of the S&P 500, if I'm not mistaken.
I'm not sure why that would be a reason to avoid them, but folks can do as they please...

 

[mrfeh]

My former FA had the US equity portion of my tIRA and Roth distributed over a mix of 3 funds, approximately 84% large-cap, 8% mid-cap and 8% small-cap, specifically SCHX, SCHM and SCHA, which he rebalanced annually. I used one of those portfolio visualizer tools to compare this to a total market fund, specifically SCHB, and sure enough, there is little difference in performance in the past 10 years. Any idea why my FA might have preferred the mixed portfolio rather than all SCHB? I see that SCHB has only existed since 2009, so one possibility is that he created the portfolio before then and just never saw a reason to change it. And sure, a cynic might suggest that the added complexity looks more impressive to FA clients like me. Anyway, Is there a reason I should consider consolidating the three into SCHB now? Ease of rebalancing, perhaps? Small caps seem to be having a moment right now after all these years, and maybe that is exactly what my lazy FA with his infinite time horizon and perpetual "stay the course" advice had in mind. I parted ways with the FA a couple of years ago but haven't made major changes to the portfolio.

I think I'd like to expand this into a critique-my-portfolio thread, but this was my first question.

Sounds like these 3 funds in these percentages are very similar to just owning a total market fund, which is what I would recommend.

If nothing else, your overall expense ratio would be lower.

 

[pjigar]

FA's job is to make things look complicated and create tax nightmares if you ever tried to leave him/her. Job security!

But seriously, most things in life has a simple rule: More efforts/time/input = better results. IMHO it is backward when it comes to investing but our mind can't accept this contrarian rule. So, most people somehow believe that a complicated portfolio will have better returns (e.g. your FA). I think this is a mental fallacy. YMMV.

 

[Lorenzo]

I could understand if Small Caps had an outstanding year, beating the SP500 that you would make more money if you held the 3 separate funds. But since small caps are just 6% of SCHB, you would need a lot of money invested in these funds to notice the difference. Run the numbers yourself at portfoliovisualizer.com

As I said in my post, before I asked the question here I ran a portfolio visualizer tool and saw little difference.

A reason to *not* consolidate would be the potential capital gains and associated CG taxes. A reason *to* consolidate would be simplification.

This is all in my tIRA account, so no tax issue.

3. Perhaps an effort to slice-and-dice the market to overweight/underweight by market cap in an effort to actively invest and beat the market. Unlikely to be this, though, if the FA didn't otherwise churn your account.

There is some concern with the weighting of the entire market being to just a few companies (magnificent seven). Not sure about the FA, but I've wondered about putting some limit on the amount of the magnificent seven and splitting up the market into a few different funds (small cap, mid cap and large cap) would allow for adjusting the exposure. Of course, that's market timing and your FA handled that through rebalancing.

Who knows why your FA chose those funds, maybe he liked to track which category was doing best or worst at any particular time. It does seem he may have underweighted mid-caps and overweighted large-caps, though different websites show different numbers so it's hard to pin down the actual weights.

This FA was a set-it-and-forget-it type ("lazy," as I put it in the original post), so I doubt he was trying to do anything fancy. He was also very conservative in his advice (e.g., when asked about retirement planning, he'd say "why not just work a few more years"), so my suspicion is he felt the S&P could be overweighted by the Mag 7 and the like, and wanted to reduce the large-cap exposure and bump up the small and midcap exposure by just a tad compared with SCHB (or VTI). In hindsight, of course, the crystal ball would have had me 100% in SCHB or, better yet, an S&P 500 fund like SWPPX (or VOO). Going forward, maybe I will consolidate into SCHB just to make rebalancing simpler. Again, it's all within the tIRA, so no tax consequences.

 

[RobLJ]

While I have the S&P index as a core fund in DW's main account, I have added small, value, and international funds in her and my accounts. When one area shoots up (like the S&P because of the MAGA 7 recently), I tend to scrape half or so of the gains and rediversify, particularly when the upswing is persistent and long.
If international and small-cap spike continues through 2026, I may be scraping from those funds for the first time in the last 5 years or so.
This likely is too much effort for too little retun (if any) for most here.

Bond fund distributions plus my SS now pay all essential expenses + a margin (not the first-class tickets to England or the Coast to Coast hike in May, unfortunately), so DW and I are entering a pretty safe space, not having to rely on capital gains in stock funds, as we have for the last 8 years. We have overlap in our accounts, so I'm going to try to consolidate over 2026, shooting for a minimum 4-5% holding in each fund. Allocation is 15.8 largecap US, 15.3 small&midcap US, 19.5% international, 35% bond, 13% cash, 2% "other".