Author Topic: Indexing is great! (For the S&P500)....  (Read 1755 times)

Frugancial Advisor

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Indexing is great! (For the S&P500)....
« on: May 14, 2016, 03:01:54 PM »
After reading through the 'Indexing Sucks' thread, I was inspired to create a new thread, one which doesn't aim to prove the validity or superiority of index investing, but one that questions the index investing strategy on a global scale.

I strongly agree with indexing the S&P500 at the lowest-cost possible for the best exposure to US equity based on empirical data and research. However, I would never advise indexing the TSX for Canadian equity exposure. The TSX has terrible diversification, a horrible performance history, and has historically under-performed the S&P for decades. You are essentially investing in energy and financials in a very small geographical area. Unlike the S&P, it has been relatively easy to outperform the TSX, and with little financial analysis required.

Therefore, I pose the question: Ignoring the S&P500 and US equity, are you 100% indexed in your portfolio's allocation to foreign equity, real estate, small cap, etc.?

CowboyAndIndian

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Re: Indexing is great! (For the S&P500)....
« Reply #1 on: May 14, 2016, 03:15:31 PM »

Therefore, I pose the question: Ignoring the S&P500 and US equity, are you 100% indexed in your portfolio's allocation to foreign equity, real estate, small cap, etc.?

Absolutely.

I decided on my asset allocation. For me this is how I break up the pie

Stocks (80%) and Bonds (20%), with the individual allocation as below
  • US Large Cap (VOO)   20.00%
  • US Mid Cap (IVOO)   20.00%
  • US Small Cap (VTWO)   20.00%
  • Int. Developed Large Cap (VEA)   5.00%
  • Int. Emerging Large Cap (VWO)   7.00%
  • India (EPI)   10.00%
  • Corporate (LQD)   7.00%
  • US Treasury Short Term (SHY)   7.00%
  • US Treasury Mid Term (IEF)   4.00%


This might be too complex for most on this site (Most reccoment VTSAX and the bond equivalent).

I do not have a REIT ETF since I have a few rental properties and do not want to be too exposed to the RE sector.


forummm

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Re: Indexing is great! (For the S&P500)....
« Reply #2 on: May 14, 2016, 03:28:25 PM »
Yes, I approximate the global market cap, which is roughly 50/50 US/Intl. REITs are included in those already.

I don't include a representative proportion of all possible investable equities, because it's difficult/impossible/expensive to own an index of all small businesses, all residential real estate, all private equity, etc.

capitalninja

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Re: Indexing is great! (For the S&P500)....
« Reply #3 on: May 14, 2016, 03:39:35 PM »
I structure my portfolio based more on achieving sector balance more than anything else. 90% of my investment dollars are in index funds to get as close equal weighting in all sectors other than Basic Materials. 

I then buy individual securities that are a good deal in the sectors that I'm light in to achieve overall balance. Regardless of how well a sector is doing, I don't allow more than 20% of the portfolio to be concentrated in any sector and no more than 5% in any given security.

Kinda like what Personal Capital does for only I do it primarily with index funds with individual securities sprinkled in. Over the past 4 years, it's yielded a better return than the S&P with less volatility.

It also makes sense for my investment goals as I primarily like to have my money in companies that pay dividends and 4 of the top 10 in the S&P currently don't.