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Learning, Sharing, and Teaching => Investor Alley => Topic started by: FrugalFisherman10 on May 25, 2018, 12:47:35 PM

Title: Ugh..I made a mistake..
Post by: FrugalFisherman10 on May 25, 2018, 12:47:35 PM
I have been noticing that my "Investable Cash" in Personal Capital was getting rather high, and I couldn't figure out why. It didn't tie to the amount of cash I thought I had available in my bank accounts. I then realized that MY TRADITIONAL IRA HAS BEEN SITTING IN CASH ever since I opened it last year! Dang it. I did not mean to be sitting on the sidelines this whole time with that money.

Although, I guess let's be real, it's not a huge deal in the grand scheme of things. And now I have an opportuntiy to reevaluate and learn a few things.

I've been eyeing Small Cap equities as an asset class I may want to start giving more weight to in my asset allocation. I'm thinking about just sinking the $7.5k I have here in the tIRA into one of Vanguards Small Cap Index Funds or ETFs
VISVX -  (
VBR - (

Here's the rest of my full picture for a brief case study type thing:
I'm 27 Years old, pretty stable job in Finance, no house, no gf/wife, no kids, 2002 Nissan truck, a bike and a kayak are my main means of transportation :)
Asset allocation (see attachment)

Goal: be well diversified, but aggressive. I'm young. I should probably be more aggressive than I am honestly. A 90% Equities/10% bonds portfolio probably fits my risk profile for this time of my life, and I try to stay around that, but I don't try very hard (as you can see by me neglecting looking at an account for a whole year and realizing it wasn't doing what I thought it was). I haven't endured a long or severe downturn. I'm about to get some stock from my company at a 15% discount, and I'm thinking of sitting on it to see how well we do over the next few years. Although, our stock price has been on the downturn for a while and the smart investor in me wants to sell right away and take my 15% profit.

Holdings: I currently own pretty much only big index fund type stuff. VTSAX /  S&P 500 / and a Target Retirement 2055. I own zero single stocks. I am about to get the ones I mentioned above.

Here's the questions:
1) do you see any issue with me making that move to start allocating more to Small Cap equities with this Traditional IRA money? It would be taking that 5.76% of my portfolio (about $7.5k) and putting it in Small Caps (Value or growth..haven't decided on that yet). Is it going to bite me someday or end up being awkward in terms of re-balancing/earning income in the 'wrong' type of account for tax purposes/etc.?
2) Do you see any other issues based on my asset allocation that I should look more into (understandably you don't have all the details but throw a few ideas my way if something is sticking out)

Title: Re: Ugh..I made a mistake..
Post by: 2Birds1Stone on May 25, 2018, 01:07:12 PM
I'm a sucker for simplicity, so I follow a 3 fund portfolio.

Small cap tilt has been helpful some years, and hurtful others.

That being said, you haven't missed out on much gains in equities the past year. We're pretty much were we were 6 months ago.

Also, you didn't include an attachment. I would bee curious to see your current AA.
Title: Re: Ugh..I made a mistake..
Post by: FrugalFisherman10 on May 25, 2018, 01:10:02 PM
Thanks for the catch about the attachment. I went back and added it

I agree..simple is better. Maybe I should stay away from adding the small cap. I already have the minor complexity of having a few different funds, bonds within my Target Retirement account, etc.
Title: Re: Ugh..I made a mistake..
Post by: grandep on May 25, 2018, 01:12:41 PM
There is an endless amount of discussion here and elsewhere on the merits of a small-cap tilt (specifically, small-cap value). From what I've read the consensus seems to be that there is a risk premium, so if you have a sufficiently long timeline then adding small cap value can be beneficial to overall returns, but you'd better be prepared to white knuckle it through some harder years. Just Google "boglehads small cap value" and you'll find a multi-page thread on the Bogleheads forum discussing all this, with arguments both for and against (notably, Taylor Larimore is not a fan).

Another point you'll find made in those threads is that the Vanguard small cap index funds are not actually all that, well, small. A favorite of small-cap tilters is VIOV, the Vanguard S&P Small Cap 600 ETF. Obviously do your own research and make your own decision, but that's the summed up version of what I've found after going down this same path.
Title: Re: Ugh..I made a mistake..
Post by: 2Birds1Stone on May 25, 2018, 01:16:07 PM
Sweet, your AA looks great!

How much of any emergency fund do you have outside of this portfolio?

Don't be afraid of some bonds either, the hit to upside is small vs. the downside protection in an extended bear market. Just food for thought.

I know most personal finance bloggers and members on forums like this one have recency bias thanks to a 10+ year bull market. Being all in on stocks is great if your investing horizon is decades long, but remember that past performance does not guarantee future returns.

Personally, being at a higher stock allocation like this would be plenty risky enough for me without tilting further to small caps. It's a very personal choice though.
Title: Re: Ugh..I made a mistake..
Post by: FrugalFisherman10 on May 25, 2018, 01:39:16 PM
I have about $8k in emergency fund savings, just sitting in a bank account. Really I have more cash than that but that's what I've decided is my goal "emergency fund" with no earmarks on it.

Thanks for the replies so far! I'll check out the bogleheads discussion on small caps. Sounds interesting.