Yes I saw that and good work Index!
I'm curious though why anyone would be invested in bonds at this particular time?
Since your comfortable with adjusting, why not just adjust those bonds right out of your portfolio and wait a decade or so until bonds start paying decent rates again?
I chose to keep the bonds allocated at 20% for asset class diversity. You can have a negative long term view of bonds, but in the short term they anchor a portfolio allowing equity allocation to increase when the market falls and the portfolio is rebalanced.
The short term bond allocation at 14% is yielding about 1.9% - not great but not 0. The ST bonds are not as sensitive to interest rate increases.
I keep 3% in LT and EM bonds. These will get crushed if/when interest rates increase, but do great in the current environment of falling interest rates. The EM bonds are not as sensitive to US interest rates and are an anchor to the 6% allocation to EM equities.
If deflation occurs or prolonged low interest rates persist, the bonds will do just fine.
There are a lot of posters saying they are 100% equities, or help me diversify my 100% equity portfolio. To this I say a 20% bond allocation has traditionally been considered very aggressive. I'm not smart enough to predict if there will be inflation, deflation, or predict the interest rates two years from now. I've read quite a bit, and deflation is just as likely as inflation in my view. I'll just stick to the 20% bond allocation and tilt it toward the short term to take some risk off the table regardless of what happens in the credit markets.
Regarding the Russell 2000 concept. Yes, this would be a preference to the S and P 500.
Please remember everyone, that I am not advocating for those comfortable with indexing to change course.
I'm not advocating trading like mad men.
What I am doing is seeking input on methods to significantly beat the indexes.
If you have a method, please share it.
Small/MidCaps have traditionally out performed the S&P, but with greater volatility- read: risk.
S&P index funds - actually all Vanguard funds - have the shortcoming of market cap and liquidity weighting. Vanguard does this so they can create more shares not because it is the right way to weight a portfolio. This equal weighting that DrFunk has alluded too eliminates the cap weighting problem, but really only out performs the index because the equal weight index holds more mid caps. It still over invests in "hot" sectors of the stock market and has more volatility (risk) than the traditional S&P.
Equal weighting the sectors (the smart index I posted) eliminates the effects of these "hot" sectors and has shown over time to produce superior returns to the S&P, RSP (equal weight S&P), and VTI with less significantly less volatility. Essentially the increased risk you are taking on by holding a higher proportion of Small/Mid caps is negated by reducing the risk of over-weighted sectors in the S&P 500.
Like I said in the other thread. This portfolio out performed both a 3 fund portfolio and a 100% VTI portfolio over 32 years. It out performed both over ever 5 year time period from 1982 to 2014 except for the tech boom in 1994 through 1999. The portfolio then trounced the 3 fund lazy portfolio and VTI in 2000 when they came crashing back to earth with their obscenely high allocations to tech stocks resulting from their requirement to buy more and more .com companies on the way up.