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Question about asset allocation

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  • Question about asset allocation

    When you all do your breakdowns of asset allocation, do you do it based on the fund, or do you break down its funds individual components?


    For example:  If I use Morningstar's data, I can see that Vanguards total Market Fund is  71% large, 20% mid cap, 9% small cap.


    So say I want my asset allocation amongst US stocks to be 50/20/30 large/mid/small cap:


    Do I count the 9% from my total market fund as my small cap portion, and then add some funds that are more heavily small cap weighted to meet my 30% small cap goal?  Or should I not split the data so much and focus more on the fund categories themselves?


    Another example is that REITs comprise 3-4% of the total market fund.  So say I only want say 5% of my total portfolio in REITs, can I just lightly tilt by investing an extra 1% a REIT fund?  Or should it be a separate 5% portfolio investment in REITs?

  • #2
    I would vote to count the 9%, if you're willing to put up with the hassle.  I just follow everything on morningstar portfolio manager.

    If you decide to slice and dice but aren't willing to track and add everything that precisely, you're probably better sticking to more "pure" index funds.  For instance, instead of TSM, you'd probably be better off buying Vanguard Large Cap, Mid Cap, and Small Cap.  Likewise if you wanted to tilt to EM, you should buy separate developed and EM funds rather than total international.

    As for REITs, I think if you tilt small, you'll exceed 5% without even adding a separate REIT option.  Most of the small cap funds I know of have 10% or more in REITs.


    • #3
      If you want to have a certain asset allocation then you need to split the funds into small, mid, large, REIT, etc.

      If you care this much about your allocations, you probably shouldn’t be using total stock market though. I personally don’t think it matters, so don’t bother worrying about this stuff.

      I would stick with two broad categories, stocks and bonds. Then divide that into US and international. No need to have international bonds in my opinion, hence my typical recommendation to use the three fund portfolio.