Vanguard small-cap index fund

[Connemara]

Been meaning to post this for a while. I need to pick funds for my deferred comp plan and I think this will be one of my choices. But should I allocate a major % of contributions to this? Or stick with something more conservative like an equity large cap or bonds index? Early in my career so I am willing to take on some risk.

 

[imatlas]

Originally Posted by Connemara

Been meaning to post this for a while. I need to pick funds for my deferred comp plan and I think this will be one of my choices. But should I allocate a major % of contributions to this? Or stick with something more conservative like an equity large cap or bonds index? Early in my career so I am willing to take on some risk.

Define "major %". Would I go over 50% of the total? No. Would I put a portion in? Absolutely - small cap tends to outperform large cap overall.

Doesn't Fidelity offer an asset allocation model that you can use to figure out an appropriate ratio? Given your age you should definitely put most (even all, depending on who you ask) of your dollars in equities, then figure out how to diversify from that point.

 

[Connemara]

I wouldn't want to put over 40% in something like a small cap.

This may help. These are my choices. https://www.nrsservicecenter.com/con...NYSDCP_IPR.pdf

 

[Ambulance Chaser]

Divide among small cap and international funds. No need to go conservative at your age.

 

[imatlas]

Have a look at this:

http://www.aaii.com/asset-allocation

This gives a good starting point, remember that it's not written in stone and can be tweaked to suit current circumstances. Also, if you go this route remember to rebalance once in a while.

 

[Pennglock]

Not that Im any kind of guru, but about 20% of my portfolio is US small cap.

 

[Concordia]

Something like 15% or a little more is small-cap in the US. So one question would be: why overweight that amount? Or underweight, for that matter? If you have no opinion or special need to fill, think instead about a cap-weighted index like the Total US Stock Market or the Total World , both from Vanguard.

While there's no need to be timid at your age and asset level, I'd have to wonder how much longer small-caps will continue to do so well vs. the boring blue chips-- which will likely do better as a group if we have either an inflationary or deflationary shock.

So if it were me, I'd focus on a core of defensive stocks that will be around and could exercise some pricing power even if we do re-create Weimar (or 1930s US). On top of that, insulate against specific risks that might bother you. The Chinese getting too rich and bidding up your luxury items? Raw materials scarcity shock? Massive contraction? The core equity should do OK there over the longer haul but you might also add dollops of emerging markets, oil&gas, and sovereign debt-- possibly non-US debt if you're very worried about the dollar.

 

[thinman]

Originally Posted by imatlas

Have a look at this:

http://www.aaii.com/asset-allocation

This gives a good starting point, remember that it's not written in stone and can be tweaked to suit current circumstances. Also, if you go this route remember to rebalance once in a while.

Conne, get yourself an AAII membership and learn something about investing. It's the best financial move I've ever made.

 

[Nereis]

Rule of thumb for anyone in the know: small caps outperform large cap in bull markets but plummet more than large caps in bear markets. If you are bullish on the world wide economy then diversify among the international small cap funds.

 

[Parker]

I agree with Concordia. I like the total market approach vs. slice and dice. If you really feel you need to overweight small cap (or any other category), I wouldn't go over 5 or 10% from the market mix.

Also the fewer funds you have the easier it is to manage and reallocate when you need to, if you're concerned about that.