PSA: Read Tyler of Portfolio Charts' recent blog post on portfolio construction?

[BicycleB]

You're very wrong about it so far.

Say more? Happy to learn. You know a lot more about SCV than I do.

[boarder42]

You're very wrong about it so far.

Say more? Happy to learn. You know a lot more about SCV than I do.

Vbr is very close to a middle middle investment  on the morning star chart. Ijs has much more small and value ness.  Avuv more so. You can trend them and see performance is better for ijs and avuv. The iss ur how long they've all been around isn't enough by itself to deduce them being better but historical performance of small and value being better up to a certain point. Rzv takes this approach to far to the point of having lower quality small and value. There is an active management piece to avuv that does have a momentum management shift in the scv space. I'm still not sure how I feel about that. But I do trust the work of Paul's team. You can read about their best in class choices and why. Originally he proposed vbr for a long time before a couple other guys joined him on his non profit and said it's not all about ERs in this asset class. And so far theyve been very correct. But again small sample size with respect to the immediate funds but not with respect to where the avg size and value hit the morning star chart.

[BicycleB]

You're very wrong about it so far.

Say more? Happy to learn. You know a lot more about SCV than I do.

Vbr is very close to a middle middle investment  on the morning star chart. Ijs has much more small and value ness.  Avuv more so. You can trend them and see performance is better for ijs and avuv. The iss ur how long they've all been around isn't enough by itself to deduce them being better but historical performance of small and value being better up to a certain point. Rzv takes this approach to far to the point of having lower quality small and value. There is an active management piece to avuv that does have a momentum management shift in the scv space. I'm still not sure how I feel about that. But I do trust the work of Paul's team. You can read about their best in class choices and why. Originally he proposed vbr for a long time before a couple other guys joined him on his non profit and said it's not all about ERs in this asset class. And so far theyve been very correct. But again small sample size with respect to the immediate funds but not with respect to where the avg size and value hit the morning star chart.

Thanks. Edited my earlier post.

[talltexan]

I, too, am frequently listening to the Merriman material, particularly his excellent podcast.

He constantly acknowledges that the differences between the Small/Value funds are not so large that selling $IJS to buy $AVUV is necessary, particularly if there are tax consequences.

I also own $SLYV, as it was his "best in class" recommendation when I first started building a position a few years ago, and I've continued adding to it.

[FLBiker]

Finally took the SCV plunge.  Thanks to Tyler and this thread for finally getting me to do it (after toying with it for like 10 years).  I'm still just easing into it -- I'm about 5% SCV (split between AVUV, AVDV and AVES) and I'm planning to go up to 10%.  I've also switched my US bonds to LTT (where I can -- those aren't available in all my accounts).  Like others have shared, I'm not yet interested in gold.

[sisto]

Somehow I missed this thread until today. Great stuff by Tyler. I was turned onto his work through Mad Fientist quite a while ago and didn't even realize he was on MMM. I was very seriously considering the Golden Butterfly, but decided not to make any drastic changes to my AA especially since I was so close to FIRE at the time. When I retired and rolled my 401K over to an IRA I did end up moving to a 3 fund approach and put much more into bonds which I am now totally regretting. They have done nothing but continue to lose since. At some point when things look better I will move away from bonds and into treasuries. Loving this thread though, lots of great discussion.

[clifp]

So I'm 2/3 toward making my transition to my new AA, which will include about 7% Gold ETF and 3% Gold stocks. So far gold has behaved as expected when the market crash it goes, and it went down today.  All my new money is going into either hard money lending, or eventually more properties in LCOL markets, right now KC, MO, but I'm also looking at Tennesse and Omaha.

Obviously, 10% does not counter act the almost 60% large-cap equities but it is a start,

[talltexan]

Obviously, 10% does not counter act the almost 60% large-cap equities but it is a start,

I think you meant this to mean the drop in the 60% of your portfolio because of recent events is more than the increase in that gold stake, but that doesn't mean you haven't improved the Sharpe ratio by having that stake.

[clifp]

Obviously, 10% does not counter act the almost 60% large-cap equities but it is a start,

I think you meant this to mean the drop in the 60% of your portfolio because of recent events is more than the increase in that gold stake, but that doesn't mean you haven't improved the Sharpe ratio by having that stake.

That's what I'm hoping for, we will see.

[Archipelago]

Just purchased some SLYV which now makes up 6% of portfolio. Thanks all.

[Bartleby_the_Scrivener]

@Tyler

Sorry if I missed it somewhere in the thread, but why small cap value over a total market fund? I really like the asset allocation of the Golden Butterfly, but that has me wondering.

[Tyler]

@Tyler

Sorry if I missed it somewhere in the thread, but why small cap value over a total market fund? I really like the asset allocation of the Golden Butterfly, but that has me wondering.

The thread was inspired by this post: Three Secret Ingredients of the Most Efficient Portfolios. Read that, and it should make more sense.

[talltexan]

@Bartleby_the_Scrivener , I'd encourage you to study "Factor Based investing" to learn more about tilting toward Small and Value-oriented companies.

[js82]

@Tyler

Sorry if I missed it somewhere in the thread, but why small cap value over a total market fund? I really like the asset allocation of the Golden Butterfly, but that has me wondering.

I suspect part of it is the underlying mechanics that make this counter-intuitive: what is optimal in a continually-rebalanced portfolio is not the same as in a "buy an X%/Y%/Z% mix of assets and hold/ignore it for the next 3 decades" scenario.

Small-cap-value is more volatile than total stock market in the short to medium term - it has greater dips/bounces any time there's a recession/similar event.  While volatility may seem like a negative, when coupled with rebalancing it can become a positive over the long term - you end up buying more of it when the market tanks, and end up getting it cheap before it rebounds.

The argument for including gold in a portfolio is similar - it's highly cyclical(and cyclical in a way that is at least partially decoupled from stocks), and while doing buy-and-hold with a ton of it over the long term isn't a sound strategy, having a small amount of it *and rebalancing continuously* ends up effectively using the volatility to your advantage.  Although lots of people tout gold as an inflation hedge, that's not the main reason it works in a portfolio(lots of other assets - including stocks - track with inflation too), it's that it's a cyclical asset that's somewhat decoupled from other assets, and as such it can improve risk-adjusted return if you're diligent about rebalancing.

It's critical to understand that these calculators assume that you are maintaining your asset allocation, which usually means one or both of selling A/buying B to rebalance, or adjusting your ongoing asset purchases to correct for smaller deviations off of your target allocation.  If an investor is not doing that and is instead just buying a starting portfolio and holding it, the math changes considerably.


Or to quote the salient part of Tyler's blog post:

But once you start studying real-world portfolio performance and account for things like asset correlations, rebalancing, and the effects of volatility on compound returns, portfolio behavior is way more unintuitive than we naturally think.