Small Cap Blend as a Substitute for SC Value and SC Growth

[Southeast]

I know the topics are covered often, so thanks for any feedback this time around. 

I was reading this article by Paul Merriman: https://www.marketwatch.com/story/the-total-market-index-isnt-all-its-cracked-up-to-be-2019-10-21

In it he makes a case for investing equally among LC Growth, LC Value, SC Growth, and SC Value as opposed to a single TMI fund.

If one had 401k Small Cap options limited to Value and Blend, but no SC Growth, is the obvious solution simply to buy the SC Blend, ignore the SC Value and then weight it as: 25% LC Growth, 25% LC Value, and 50% SC Blend? Just wanted to see if there's something I'm missing.



 

[bacchi]

Take a look at the Morningstar X-Ray rating for that SC Blend fund. (Check your library or TD for access and there might be a 30 day free trial.) The SC "Blend" might be too growthy. They often are.

[Tyler]

If one had 401k Small Cap options limited to Value and Blend, but no SC Growth, is the obvious solution simply to buy the SC Blend, ignore the SC Value and then weight it as: 25% LC Growth, 25% LC Value, and 50% SC Blend? Just wanted to see if there's something I'm missing.

SC blend should work just fine.  In fact, you're very likely to get the same results as a value/growth split.

The way most index funds work, "value" is defined as the cheap half of the market and "growth" is defined as the expensive half of the market.  "Blend" is just the entire market including both value and growth stocks.  So buying a single blend fund will give you virtually identical results to buying 50% value and 50% growth.  Try both 100% SCB and 50/50 SCV/SCG in the tools here and you'll see what I mean:  https://portfoliocharts.com/portfolio/my-portfolio/

[Southeast]

SC blend should work just fine.  In fact, you're very likely to get the same results as a value/growth split.

The way most index funds work, "value" is defined as the cheap half of the market and "growth" is defined as the expensive half of the market.  "Blend" is just the entire market including both value and growth stocks.  So buying a single blend fund will give you virtually identical results to buying 50% value and 50% growth.  Try both 100% SCB and 50/50 SCV/SCG in the tools here and you'll see what I mean:  https://portfoliocharts.com/portfolio/my-portfolio/

Thanks Tyler (and bacchi earlier). That information really helps.

[MustacheAndaHalf]

I know the topics are covered often, so thanks for any feedback this time around. 

I was reading this article by Paul Merriman: https://www.marketwatch.com/story/the-total-market-index-isnt-all-its-cracked-up-to-be-2019-10-21

In it he makes a case for investing equally among LC Growth, LC Value, SC Growth, and SC Value as opposed to a single TMI fund.

If one had 401k Small Cap options limited to Value and Blend, but no SC Growth, is the obvious solution simply to buy the SC Blend, ignore the SC Value and then weight it as: 25% LC Growth, 25% LC Value, and 50% SC Blend? Just wanted to see if there's something I'm missing.

You quote an article that recommends diversifying with SC Value.  From the article:
"If I had to pick just one major U.S. asset class to use as a diversifier against either the S&P 500 or the TMI, it would be small-cap value stocks."

I don't see the connection between the article and what you want to do.  You're leaving SC Value out of your portfolio.

[Southeast]

You quote an article that recommends diversifying with SC Value.  From the article:
"If I had to pick just one major U.S. asset class to use as a diversifier against either the S&P 500 or the TMI, it would be small-cap value stocks."

I don't see the connection between the article and what you want to do.  You're leaving SC Value out of your portfolio.

I was basically questioning if the blend fund available to me (that has value and growth) is acceptable instead of two separate funds of value and growth (of which growth is not available to me).

He also says "...diversify equally among large-cap growth, large-cap value, small-cap growth, and small-cap value." Again, I thought the small blend would be a solution.

[MustacheAndaHalf]

I personally prefer historical data showing an approach has worked.  The article you read shows data for a total market fund and small cap value, but doesn't run a comparison for a split into 4 equal sized asset classes.  When I see advice without data, I prefer to dig further.

If you like Paul Merriman's article, there's more on his website:
https://paulmerriman.com/the-ultimate-buy-and-hold-strategy-2019-update/

The way a portfolio is built up looks very similar to how Larry Swedroe built up portfolios in his "Winning Investment Strategy" book:
https://www.amazon.com/gp/product/0312339879/