Vtsax and chill to efficient frontier doubts

[Mollie]

After hearing about the efficient frontier for a while and learning more about it, including suggested asset allocation, I adjusted our holdings from only vtsax within the last 6 months. Obviously, this is not the most normal time period, and I definitely get that these are long term plans, but I'm just looking for assurance (or not) that I'm not way off base. The part that we have in vtsax seemed to do the best in my most recent net worth update which did a lot less well than previous periods. (Again, i realize I'm looking at it very short term.)

We have equities evenly split among index funds for vtsax, small cap value, large cap value, and small cap blend. Everyone will have their personal opinions, but generally, this is nothing terribly off-base? My fear is messing up an allocation that was previously working fine even if not optimal.

Thanks.

[WorkingToUnwind]

Vrsax has been our investment strategy for the past ten years. Aside from being super smart about single stock investing (which we are not) this has been the best investment strategy for us.

[Radagast]

I think you will be OK. A couple things to keep in mind:
- the efficient frontier for the future will vary from that of the past and is unknowable
- there's no reason to think the value/small paradigm is the best way to capture a hypothetical efficient frontier, but also no reason to think it's a terrible way. There are infinite concepts to slice the market.
- 100% stocks is typically on the efficient frontier at the very top right corner.
-Other assets are also regularly on the EF, including international stocks, various types and durations of bonds, other types of things like precious metals, REITs, and the like. I'd suggest at a minimum a good chunk of international stocks, and to make a 5th slice for that. Bonds when you are closer to "enough".

I am also "well diversified" which means I don't do as well when large US companies outperform, but do better when they underperform (eg 2025 so far).

[VanillaGorilla]

100% large cap equities is just fine. VTSAX is just one example of a whole class of low cost large cap domestic index funds and they are all entirely identical for FIRE purposes.

You can read the opinions of plenty of folks who have thought about this extensively and accomplished very impressive goals.

https://www.gocurrycracker.com/path-100-equities/

https://earlyretirementnow.com/2021/03/02/pre-retirement-glidepaths-swr-series-part-43/

https://ofdollarsanddata.com/lost-decades-are-even-rarer-than-you-think/

https://jlcollinsnh.com/2025/04/18/a-new-edition-of-the-simple-path-to-wealth/

Note that the 'efficient frontier' considers risk adjusted return, not return. Arguably during your accumulation phase you care more about the latter than the former. Also note that while you're actively investing new money into the market, any market drawdown is significantly attenuated compared to static allocation analyses.

Cliff notes: no, you are not off base.

[markpst]

To me, 50% allocated to small caps seems high. I have some large cap value, but you are actually overweight value since some (can't recall the number - 8%, 13%?) is already in VTSAX.

On a P/E basis, small cap is considered to be cheap these days (but also volatile). Tariffs are a worry to me for small caps. I wouldn't go higher than 25% personally. I just sold some small cap and moved it to international.

I feel like the stock portion of my portfolio is fairly conservative. I also have 7% in treasury bonds / cash which I will be increasing. I think international will do well without the upside (but also the downside due to high valuations) of US large cap. I could see where US large cap continues to dominate (technology driven) but I don't want to bet it all on that. Interest rates there are low and now Europe is increasing their defense spending which is stimulative. Small cap - hard to say - I've heard a lot of companies basically jump in as mid-caps these days.

I have:
Large cap 45% - mostly VTI but a tiny % that I've been adding to large cap value in there
Developed Int'l 21%
Mid Cap 14%
Small Cap Value 13%
Emerging markets 6%
Individual stock 1%

[Mollie]

Thanks all for the responses.  I know there are plenty of opinions out there about allocation.  I did mine based off of interviews with Paul Merriman and talking to a financial adviser.  I'm going to keep thinking on it and at the very least give it another 6 months.  Going back to all VTSAX is certainly not the worst decision I could make. 

I never worried about VTSAX or considered moving things around if it was a bad time in the market.  So far, I don't have that same confidence in splitting it up, but I'm trying to give it a chance. 

[markpst]

I see where you are going with the four fund strategy - historically the mix has smoothed the returns of those asset classes. It's hard watching others do better than you - the reason individual investors underperform the market is they buy high and sell low. Just revisit why you got into it that method/plan. I would read the Simple Path to Wealth if you have not (which advocates VTSAX and forget about it)

I never did write down a personal investment plan/strategy with the "why's" but it probably is a good idea.

Four fund strategy historical returns:
https://www.aaii.com/images/journal/237681-figure-1.png

[Radagast]

I should point out here that Merriman's official portfolio included as many international stock allocations as US stock allocations. Performance chasing at the time it was published, no doubt. By focusing only on the US, are you performance chasing now? He also has some specific bond recommendations, which were perhaps not so performance chasey.

https://portfoliocharts.com/portfolios/ultimate-buy-and-hold-portfolio/

Asset allocation has gone out of style it seems, but there's lots of takes on it:
https://portfoliocharts.com/portfolios/ultimate-buy-and-hold-portfolio/

[VanillaGorilla]

I should point out here that Merriman's official portfolio included as many international stock allocations as US stock allocations. Performance chasing at the time it was published, no doubt. By focusing only on the US, are you performance chasing now? He also has some specific bond recommendations, which were perhaps not so performance chasey.

https://portfoliocharts.com/portfolios/ultimate-buy-and-hold-portfolio/

Asset allocation has gone out of style it seems, but there's lots of takes on it:
https://portfoliocharts.com/portfolios/ultimate-buy-and-hold-portfolio/

%   Asset Class
6%   Large Cap Blend Stocks
6%   Large Cap Value Stocks
6%   Small Cap Blend Stocks
6%   Small Cap Value Stocks
6%   International Large Cap Blend Stocks
6%   International Large Cap Value Stocks
6%   International Small Cap Blend Stocks
6%   International Small Cap Value Stocks
6%   Emerging Market Stocks
20%   Intermediate Term Bonds
20%   Short Term Bonds¹
6%   REITs

That would be fun to rebalance across the dozen or so accounts I have.

[Radagast]

I should point out here that Merriman's official portfolio included as many international stock allocations as US stock allocations. Performance chasing at the time it was published, no doubt. By focusing only on the US, are you performance chasing now? He also has some specific bond recommendations, which were perhaps not so performance chasey.

https://portfoliocharts.com/portfolios/ultimate-buy-and-hold-portfolio/

Asset allocation has gone out of style it seems, but there's lots of takes on it:
https://portfoliocharts.com/portfolios/ultimate-buy-and-hold-portfolio/

%   Asset Class
6%   Large Cap Blend Stocks
6%   Large Cap Value Stocks
6%   Small Cap Blend Stocks
6%   Small Cap Value Stocks
6%   International Large Cap Blend Stocks
6%   International Large Cap Value Stocks
6%   International Small Cap Blend Stocks
6%   International Small Cap Value Stocks
6%   Emerging Market Stocks
20%   Intermediate Term Bonds
20%   Short Term Bonds¹
6%   REITs

That would be fun to rebalance across the dozen or so accounts I have.

The bogleheads forum came up with a simplified version, which had
12% US Large
12% US Small Value
12% International Large Value
12% International Small
6%   Emerging Market Stocks
6%   REITs
20%   Intermediate Term Bonds
20%   Short Term Bonds¹ (split with TIPS)

That maintains the same overall small/value/international exposure but reduces 4 slices. But yeah, these theoretical portfolios become quite difficult when you consider the realities of 401k investing and the need to also then have Roth, IRA, HSA, 529, taxable brokerage, et cetera and then even double them for two player mode.

Would I suggest that OP go with the international split of four stock funds by going
US Large
US Small Value
International Large Value
International Small
since they have four stock funds anyway?
Yes, I would. Or at bare minimum make one of the four funds into an international version.

[bacchi]

I should point out here that Merriman's official portfolio included as many international stock allocations as US stock allocations. Performance chasing at the time it was published, no doubt.

Eh, not so much. Merriman has been recommending international for years now, even when US LCB has/had been outperforming. Performance chasing would be tilting heavily to US LCB or US tech (QQQ?).

[Radagast]

I should point out here that Merriman's official portfolio included as many international stock allocations as US stock allocations. Performance chasing at the time it was published, no doubt.

Eh, not so much. Merriman has been recommending international for years now, even when US LCB has/had been outperforming. Performance chasing would be tilting heavily to US LCB or US tech (QQQ?).

Hmmm but Merriman is a bit older. As a generalization, international outperformed US from 1950 right through the Japanese bubble top in 1989 (although there was quite a bit of coincidence in this). And then again from 2000 to 2009. So looking back in the mid 1990s the US had underperformed for 45 of the past 50 years, with the last 5 being the exception. And as of 2010 international had done better in something like 5 of the past 6 decades. Now we look back and see the US has done much much better since 1990, with only a fairly insignificant exception from 2000 to 2009, and recommendations for international are a lot harder to come by or justify. The amount of time the US has spent outperforming since 1990 (and it was even more impressive since 1980, just international did even better in the 80s thanks the the Japan bubble) is an entire investing lifetime, and people recommending foreign stocks have looked like damned fools again and again for decades. So that’s the context to say foreign investments were performance chasing say 1980 through 2015, and the US recommendations are performance chasing since say 2015.

[MustacheAndaHalf]

Those posts above with same percentages may be diversified - but they are not efficient frontier.  The efficient frontier changes depending on when you measure it and how far you look back.  The portfolio percentages would be all over the map, and change frequently.  Which is why I ignore it.  Interesting in theory, but too volatile in practice.

[BicycleB]

It takes years and years for an "efficient" choice's performance to prove that it's better than the other choices that were considered by an investor. Some years are better, some worse, and in a short period of three or five years, it's way too soon to judge by "results".

Your original allocation was pretty good. Your current allocation is pretty good. You'll probably be more "efficient" in the long term by sticking with one or the other instead of making a lot of changes. The returns that experts project for these portfolios are only valid if you stick with your plan through all parts of the business cycle, year after year, steadily.

Switching means you'll get a result that might be higher or lower. The trick is that most of us switch from something that's at a low point to something that's already high, and thus we reduce our performance - the "winner" we bought fades, the "loser" we sold bounces back, our timing tends to be bad.

Don't judge your recent decision by "vtsax looked better in the last six months".

If you can stick with your new plan for many years, great. If it's uncomfortable but the old plan would be comfortable under all future conditions, revert to the old one and stick with it. If your emotions are going to make you uncomfortable any time your choice was a few percent less than another one, leave the plan alone and learn to manage the emotions instead (maybe by ignoring your portfolio balance and taking bicycle rides).

For a really long term diversification, VT instead of VTSAX includes some international. I would argue that this protects you in the event that the USA suffers decline relative to other countries, acting as a hedge against something that would damage your career. But if you prefer your original or current portfolio, they too will likely provide good long term results.

As long as you spend less than you earn, invest in low cost rational funds like you already are, and keep on going, you will be fine. You'll be ahead of most people, and will reach FI over time. Keep up the good work, @Mollie!