As a dedicated financial educator and retired investment advisor, Paul Merriman welcomes questions from his readers and listeners. Please email your questions (stated as succinctly as possible) to firstname.lastname@example.org. Title the subject line: ASK PAUL. Be sure to include your name and phone number so Paul can reach you if further discussion is required. While time does not permit Paul to answer every question personally, or even specifically, we do our best to address common questions. We may post your question and Paul‘s answer here on this site. We will not post your name or personal information. Thank you!
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- Diversification or Specialization: which is it? There is some conflict between the two messages of your recent podcast on diversification: (1) diversify by holding many different sorts of investments, (2) specialize by tilting toward small cap value stocks, because these offer the best returns. So, which is it – diversify or specialize?
- Your question is an especially important one for investors trying to figure out the best way to approach the diversification within the equity part of their portfolio. There are many investors who believe in using the S&P as the base of their equity portfolio. Many of those investors choose a traditional S&P 500 fund or ETF that holds cap-weighted positions in the companies within the index. In other words, the portfolio returns are going to be mostly driven by the larger companies in the index. Other S&P 500 investors believe in owning all of the same S&P companies but equally weighting the individual issues, so they end up with the same number of holdings but in different percentages. Both are legitimate ways to own the S&P 500. Both are considered diversifying rather than specializing.I recommend the same approach to building a portfolio but I do it with asset classes rather than individual companies. The S&P 500 is considered a large cap blend index. Part of the S&P is identified as growth and the balance as value. But in all cases the companies are considered large.Most academics studying asset allocation have highlighted the long-term importance of owning more value and small cap than would be represented in a cap-weighted portfolio. In a total market index, investors will get a small amount of small cap growth and small cap value but the exposure is so small it has little impact on long-term performance. If you want to compare the long-term returns of equally balancing four main U.S. equity asset classes, I hope you will take a look at this article and table.The article compares large cap blend, large cap value, small cap blend and small cap value asset class returns over one, 15 and 49 year periods. The table also shows the impact of balancing a portfolio across all 4 asset classes. Over the entire period of the study, the 4 fund portfolio produced about 6 times more return with almost exactly the same average losing year. The additional return for the 4 asset class strategy was about 2% a year.You ask which is it - diversify or specialize? I consider my approach a chance to expand your diversification, not reduce it, and raise your return with approximately the same long-term risk.
- When are you going to give us an article on a diversified fixed-income portfolio?
- I suspect it will be several months before I tackle the topic. I have addressed many of the aspects of fixed-income in Q&As and podcasts in the past. I have a Vanguard monthly income portfolio that I have recommended for more than 15 years. Check it out along with the other Vanguard portfolios I recommend http://paulmerriman.com/
vanguard/. For the 15 years ending 12/31/15, this portfolio compounded at 5.5%. For the first quarter of 2016 the four-fund portfolio is up 2.4%. That's good start to a year that was promising lower bond returns due to expected increased interest rates and lower bond returns.
- Why are you still recommending funds with negative returns? Looking at most of the returns of the funds you recommend, they seem to be returning negative results in the recent past (1-3 years). Why are you still recommending them? What is your thought behind these funds?
- This is one of the most important questions I get... and I get it often. My portfolio is constructed using asset classes that have very long histories of success. There are periods in which they all fail to live up to their past. For example, from 1975 to 1999 the S&P 500 compounded at 17.2% and the biggest calendar loss was 13.1%. Plus, there were only 5 losing years, averaging 7.6%.After that run of returns, at a risk level that most would say is acceptable, investors were expecting something similar or, if not similar, something reasonable. What they got was a kick in the financial teeth. From 2000 to 2009 the index had 4 losing years, averaging 20%, with 2008 losing 37%. For the entire 10-year period, the S&P 500 lost .9% a year, including the reinvestment of dividends. What most people don't know (including most experts) is the 2000-2009, inflation adjusted return is lower than that of the 1929-1938 period (-3.4 for 2000-2009 vs. a gain of 1.1% for 1929-1938).So, what did I do with the short-term loss? Yes, 10 years is a short period of time to judge any return. What I know is the 1928-2009 return of the S&P 500 was 9.8% and long periods of underperformance are normal. My decision was to stay the course and continued to include the S&P 500.Yes, many of the asset classes I recommend have experienced lower than desired returns over the last few years, but they have not been lower than expected returns. So I have kept all of those asset classes in the portfolio.We know that losing money, or underperforming expectations, are difficult emotions for people to manage. My hope is that with very broad diversification of historically successful asset classes, more investors will be able to stay the course long term. I know it will not be the answer for a lot of investors.For some investors the solution may be an all-U.S. portfolio and for others a single balanced fund that doesn't make it so easy to notice the underperformers. Another approach that seems to work for many, at lower expected rates of return, is a portfolio of very large U.S. companies that pay dividends. Even if the expected returns are lower, it may be a way for some to continue holding during painful periods.I only wish for you to find the strategy that will help keep you in the process. Some investors find a combination of my Vanguard Monthly Income Portfolio, my Vanguard Moderate Portfolio and an ETF like Vanguard Mega Cap Vale (MGV) will keep them on course. Good luck!
- Is this a good time to invest in international equity stocks? With the US Dollar exchange rate at high levels relative to most international currencies, is this a good time to invest some money into mutual funds that focus on international equity stocks? Any special caveats on making such investments?
- If you check out my mutual fund and ETFrecommendations at Vanguard, Fidelity, T Rowe Price, Schwab and TD Ameritrade, you will see that I advocate a 50% position in international equities. Over the 46 years ending Dec. 31, 2015 the additional return over a 100% U.S. equity portfolio is about .9% a year. This difference is very clear in a new article (The Ultimate Buy and Hold Strategy). The academics think the addition of internationals reduces overall volatility, but my study shows a slightly higher standard deviation than an all U.S. portfolio. Your question has the feeling of a market-timing question rather than a buy-and-hold concern. In the market-timing portion of my portfolio I presently have less than 50% international equities because the trend following timing systems have triggered sell signals.
- Can you compare Vanguard’s international small cap funds? I’ve heard you recommend “DLS” for an International small cap fund. I’ve been looking at your recommendations for Vanguard mutual funds, and I see it has VFSVX listed for International small cap. Could you explain how these compare? I’m planning to use your mutual fund recommendations from Vanguard, but am not sure if there is any advantage to including DLS, or if using VFSVX would cover international small cap just as well.
- As I compared the two securities, I focused on the expenses (lower is better), average size company (smaller is better), price to book ratio (lower is better) and the performance (higher is better). DLS wins in every category except expenses. VFSVX charges .31% vs. .58% for DLS. One of my beliefs is we shouldn't take a risk that doesn't produce a premium. A higher expense is a risk and the premium (for the last 5 years) for the higher risk was a compound rate of return 3,9% for DLS and a loss of .6% for VFSVX. Five years is not very long but given that all the differences in size and value point to higher returns for DLS, I believe it should do better in the longer term.
- What are your best suggestions for an Emerging Markets Value ETF and an Emerging Markets Small Cap ETF?
- Both TD Ameritrade and Schwab offer EWX on a commission-free basis. While EWX is not officially a small cap value fund, according to Morningstar, it's very close. The average company size is only $720 million, with a price to book of .98 and an expense ratio of .65%. The other ETF that could qualify as small cap value is EEMS, available at Fidelity. The EEMS expense is a little higher than EWX, the average size company is $70,000,000 larger and the price to book is slightly higher. So the return of EWX should be higher than EEMS. So far that has been the case as EWX has outperformed EEMS by 1.3% a year over 3 years. None of the commission free ETF sources offer emerging markets large cap value ETFs, but all of them offer large cap ETFs that are at least 50% value. For my recommended Commission-Free ETFs, click here.
- What fund do you suggest for short-term cash?
- I hold the Vanguard S-T Investment Grade Bond Fund (VFSTX) in my taxable short-term cash-need account. The current yield for this fund is 1.99% vs. .5% for the Vanguard Short-Term Tax Exempt Fund (VWSTX). The after tax return is much higher with VFSTX.
- Should we trust these advisors regarding annuity advice? We received a letter from AARP about NY Life AARP Lifetime Income Plan with Cash Refund Annuity. I called my Financial Advisor and he suggested “a better plan” with an Index Annuity, while another broker suggested Phoenix Index Annuity with no down-market exposure. We have money sitting in the bank earning almost nothing. We are tempted but not sure because we think these financial advisors are biased and not sure if they want what is best for us. Your input will be much appreciated.
- These are all very complicated investments and most of them are of greater value to the salesman than you. The person I think will give you the best advice is Stan Haithcock. Stan offers an amazing amount of free educational material on all kinds of annuities, along with a free consultation. You don't have to buy anything from Stan, but I wouldn't buy any annuity without getting his guidance and his quote first and/or last. I suggest you go to him last, as you would be able to compare him to all the others. On the other hand, if you go to him first his educational material will prepare you to get the most out of your other conversations.
- If we need an advisor, is it good enough to get an RIA (registered investment advisor) who has a fiduciary responsibility to his clients? Aren’t many RIAs also advocates of individual stock picking and sellers of insurance? I noticed some in the Garrett Planning Network are licensed to sell insurance and believe in individual stocks.
- A: Your point is very important. I have a free e-bookthat lists all the things we should know about an investment advisor before we do business with them. In "Get Smart or Get Screwed: How to select the best and get the most from your financial advisor," I recommend we understand what the advisor believes about the investing process.My wife and I have an investment advisor. He believes in low cost, no-load, passively managed mutual funds. He believes in balancing the equity portfolio between many asset classes that have a history of long-term success. He does not hold himself out as being able to predict the future or know what company, industry or country is going to be most profitable. If he could predict the future he wouldn't recommend the massive diversification he advocates. He believes in including enough fixed income to address my willingness to lose money in a bear market. In 2008, for example, the combination of our buy and hold and timing strategies and asset classes lost less than 20%, well within our risk limit.He will never receive a commission on any transaction. He helps with making insurance decisions but uses a firm that works only with investment advisors, (Low Load Insurance Services). This firm can cut the costs of insurance by as much as 50%. I trust my advisor will take good care of my wife, should I die first. When I die, I suspect he will reduce the risk of our portfolio. While 90% of my investments are arranged to earn 6% to 8% long term, the other 10% is invested in a hedge fund that is built to make over 12%. That position will not be appropriate for my wife.My advisor knows everything about me and I think I know everything he believes about how to invest successfully. I think investors who don't know how investing works are at risk of getting well-meaning advice that isn't likely to produce the best unit of return per unit of risk.I don't think an investor should be working for a firm that sells any commissionable products. Or, if you work with an advisor who can choose between being a fiduciary (and not take a commission) or selling products with commissions, get it in writing that they are acting in a fiduciary capacity and will never take a commission or any other compensation (including free trips to warm climates during cold winters) other than the hourly fee or asset based fee (a percentage of money under management).I recently recorded a podcast about an advisor who promised he was not receiving a commission on the products he was recommending. It turns out he received over $11 million dollars in commissions!Check out this podcast for more on this scam.In my free e-book, "101 Investment Decisions Guaranteed to Change Your Financial Future," I list almost every important fork in the road you are likely to face. Those are the same forks in the road you and your advisor will face in constructing your portfolio. I hope you check out those 101 decisions. It's a very quick read and, in many of the cases, taking the right fork in the road could make you millions more over a lifetime. Let me know if it helped.I do have one bias, after over 50 years in the industry. I would only work with a RIA who can access DFA Funds, as I think they are better than Vanguard. For do-it-yourself investors, I recommend Vanguard fundsand ETFs at Vanguard, Schwab, Fidelity and TD Ameritrade.
- Why do you suggest, in your recommended portfolios, allocating a large amount of fixed income to short-term bonds?
- The reason for using short to intermediate bond funds is to minimize losses during falling equity markets and/or during periods of rising interest. I have no problem with having all the bonds in intermediate bond funds. I have a number of followers who use my Vanguard Monthly Income Portfolio for the fixed income part of their portfolio. That's okay but they are taking a lot more risk. In 2008 the Monthly Income Portfolio lost money while the all-government portfolio made money.
- What do you mean by “mechanical plan” and can you please explain “timing the market”?
- The term mechanical means finding a way to invest that eliminates as many of the emotional decisions as possible. For example, investing the same amount automatically every month in a 401(k) (dollar cost averaging), rebalancing the holdings once every year or two, and investing in index funds that eliminate all emotional decisions for you and the manager. The more emotional steps to the decision-making process, the lower the likely return.Market timing is simply making buy or sell decisions based on one of 100 different ways or reasons to be in or out of the market. Most market timing decisions are made by intuition based on feelings of fear or greed. Others, like the ones in my accounts, make all buy and sell decisions based on mechanical systems that indicate a change in market trend. "All About Timing" does a good job of explaining mechanical market timing. Here are a couple of articles on timing I have written: How Market Timing Reduces Volatility andWhy Market Timing Doesn't Work.
- What role, if any, should a stable value account play in a retirement portfolio? I retired a few years ago and left a portion of my portfolio in a 403B. This portion is invested in a stable value account currently paying 2.75% and I am treating this as fixed income in lieu of bonds. Good move or bad?
- A very good move. Most stable value funds pay higher rates of return than short-term bond funds and have lower volatility. The risk with a stable value fund is that the guaranteed payment is made by an insurance company. In most cases they are highly rated insurance companies, so there should not be a concern of default.
- If someone has an investment horizon of 30 years, does it make sense to risk missing the premium pay off on small caps? You recommend overweighting small cap equities. Isn’t there a strong argument to be made that the return premium on small cap in the past may have been due to illiquidity in this asset class, and now that small cap stocks are much more liquid there may not be this premium? Also, it seems that at times the return premium on small cap doesn’t pay off for a long time. If someone only has an investment horizon of 30 years does it make sense to risk missing it?
- Your worry about small caps losing their size advantage is exactly what was being said about them in 1999, after the small cap asset class underperformed large cap blend for 30 years. The conclusion: Everyone knows about the advantage so it won't work anymore.For the next 16 years the premium for small cap was one of the largest in history.As you know I recommend many different equity asset classes. I have no idea which ones will be best in the future. Maybe large will beat small. That's okay because about half the equity portfolio is in large cap. Maybe growth will beat value. I'm covered. U.S. might beat international. I'm covered. I'm not counting on any one thing being the best. But I think almost all of these asset classes will do better than someone who places a bet on one stock, one industry, or one asset class.
- What should I do with hundreds of thousands of dollars in cash? I’m 58 and plan on retiring within a year. After maxing out my 401(k) and Roth contributions for years, I’ve accumulated hundreds of thousands of dollars in cash and would like your recommendation on what to do with it. I plan on funding the first 6 to 7 years of my retirement with it, and I’m hesitant to put it in equities. Half of it is sitting in a ladder of CDs.
Yours is the most difficult of all the questions I have received this session. I was once an investment advisor but today, at age 72, I am only a teacher trying to reach investors who are open to finding a better way to invest their money. The problem with trying to educate everybody is that such general advice is rarely right for each individual. So when I respond to your request for advice, you can be assured that I am an expert on investing. That's the good news! The bad news is I am not an expert on you. And you are the most important consideration in the process of putting together the best retirement portfolio. Your question suggests a very cautious attitude about where you invest your money and little risk tolerance. Of course, I could be wrong.
If I am right, my challenge is to help you find a mechanical way to make good investment decisions now, and in the future. By mechanical I mean finding a way to make investment decisions that don't require dealing with the sometimes emotionally painful gyrations of the market.
I have no idea how much money you have to draw from your investments in retirement. I have no idea whether you have "enough" or more than enough to meet your future financial needs, including your desire to leave something to others. I think the free chapter on "Moving to action: 12 numbers to change your life", from my book "Financial Fitness Forever," will be helpful as a start.
Let me share how I approached using my own portfolio to fund our retirement. The first week of each year my wife and I take out 5% of the year-end balance from the previous year. If the market made some money the previous year, we get to take out more. If the market didn't do well we will take out less. Whatever the amount, that's the money we have to live on for the year.
The balance of our investments is basically 50/50 stocks and bonds spread amongst 12 funds. At 5% a year the 50% in bonds will support 10 years of distributions. That's in theory, as our portfolio is rebalanced about once a year. That means there are years we are moving money from bonds to equities (after a stock market decline) and years we are moving money from equities to bonds (after a profitable year in the stock market). By the way, the 5% for the year is moved into a short-term bond fund for monthly distributions.
When I was an advisor I had many clients who were not comfortable with my "one year at a time" discipline. They wanted more of a cushion from the vagaries of the stock market. In some cases the accounts were set up to hold one year of cash needs in a money market fund, with another year of cash needs in a short-term bond fund, and then the balance in a portfolio that could be anywhere from 30% to 60% in equities.
While I'm not in a position to give you personal advice, I recommend you read a series of articles and listen to several podcasts that should help. One huge decision we all make (by choice or chance) is how much in stocks and how much in bonds. For many years I have updated a table that has helped thousands of people make the stock/bond balance decision. Please check out my Fine Tuning Your Asset Allocation page that includes an article, podcast and the Fine Tuning Table.
The next major step is to decide where to invest the equity portion. There is nothing wrong with simply using the Vanguard Total Stock Market Index. What I have done with my own portfolio is use a group of equity funds that are built, as a group, to produce higher returns without additional risk. If you wish to understand why I have chosen those equity funds please read, "The Ultimate Buy and Hold Portfolio."
Finally, how you access your money in retirement is a huge decision. It will determine how much you have to spend, as well as how much you leave to children and charities. For many years I have produced tables that show investors the outcome of using fixed distributions for those who have not over saved, as well as tables reflecting variable or flexible distributions for those who have over saved. As you will discover, to have over saved offers many more choices. Here is the link to those articles, podcasts and tables.
There are many decisions in the process, but the final one that seems to make a big difference is whether you do it all yourself or get professional help. My wife and I use an advisor because we don't want to spend our life thinking about our investments. There is a price for that peace of mind. I am a frugal person, so I understand that paying someone to do something you believe you can do yourself seems like a waste of money. If you want to compromise between doing it yourself and having someone who takes care of everything, you can work with a firm that offers hourly advice. I suggest you check out Garrett Planning Network for hourly advice. I do not recommend you use them for fee-based management, but I do recommend them for hourly help. For more on how to choose an advisor, read "Get Smart or Get Screwed: How To Select The Best and Get The Most From Your Financial Advisor," also available as afree download at my website.
I hope some of this information is helpful. I feel blessed to have my own investments managed in a way that I don't worry about them. I hope you find the same peace of mind.
- Do you offer an investment newsletter for income-oriented investors who are in or near retirement?
- I don't offer a traditional investment newsletter that focuses on investing for income. Instead, Rich Buck and I write articles that focus on asset class selection, asset allocation, fund selection, and taking distributions in retirement. Along with those articles, plus podcasts, I recommend the funds an investor can use to build a portfolio during the accumulation period as well as distribution period. The combination of articles, podcasts and portfolio recommendations is my way of giving the general investment advice investment newsletters normally offer.
- Any thoughts on the newsletter, Retirement Watch, from Bob Carlson? Or can you recommend one that is good for retirees?
- I suggest subscribing to The Hulbert Financial Digest for one year. Hulbert is the only source of newsletter performance I trust. I have subscribed for over 20 years and find his work worth every penny. According to Hulbert's results, Carlson's newsletter has two portfolios with at least 15 years of performance. His Sector Portfolio has a 2.8% compound rate of return and his Balanced Portfolio has a 3.5% compound rate of return, through June 30, 2015. It's easy to find other newsletters that have performed better. Sound Mind Investing has a 5.6% return for a similar low-risk portfolio (60% equities/40% bonds). My Vanguard Moderate Portfolio, (also 60/40) compounded at 6.5% a year for the same 15-year period, during which my Vanguard Monthly Income Portfolio (all bonds) compounded at 5.6%. The key for most investors is to find a strategy that requires very little maintenance and makes the necessary return. For more on this subject, you may want to read "The Truth About Financial Newsletters."
- Can you recommend a single fund that is low risky but still might make 12%? I like the idea of making a $3,000 investment for my future grandchild that may turn into a significant legacy, but I’m not very comfortable putting it all in small cap value.
- That's a tall order. If I had to choose one asset class that might make a 12% return, but be less risky, I would choose large cap value. If I could twist your arm a little, I would recommend half each in small and large cap value. Please take a look at the tablehttp://paulmerriman.com/legacy-new-born-child-pdf-1/ that shows the lifetime results of 4 to 12 percent returns. At 11% (likely large cap value return) the distributions and life ending values would be $22,000,000 and at 10% (all S&P) about $10,000,000.
- Should we factor Social Security in our long-term planning? My wife and I are doing some long-term planning for the first time. We have a difference of opinion about the viability of Social Security. What do you suggest? Count it in or out?
- I'm not surprised at your difference of opinion. In April 2015, Gallop surveyed 1,015 people about their expectations regarding the receipt of Social Security when they get to retirement. One out of seven (14%) do not believe they will receive a penny of Social Security. The Social Security shortfall can be easily fixed. It will simply be painful for the taxpayers who will make Social Security viable. I believe Social Security will be means tested, more heavily taxed and require a higher deposit rate. I do believe it should be part of the long-term plan.
- In addition to U.S. small cap value, what other asset classes could make 12% long term?
- The list is fairly long. Some asset classes have made 12% or more since the 1920s, while others only have historical returns since the 1980s. The asset classes that have over 80 years of history are U.S. small cap value, U.S. large cap value, and U.S. small cap blend (combination of growth and value). The asset classes that have produced more than 12% over the last 25 years are international large cap value, international small cap blend, international small cap value, emerging markets large cap value, and emerging markets small cap.
- Do you think its worth a 1% annual charge to have access to the DFA funds? I know you are a big fan of Dimensional Funds. I’ve located a DFA in my area. I’m going to invest $100,000 in a taxable account. I don’t need the money for at least 20 plus years. Is the 1% charge the industry standard?
- Making DFA funds available is only a small part of what a good advisor should do for you. I suggest you read my book, "Get Smart or Get Screwed: How to Select The Best and Get The Most From Your Financial Advisor" It is available as a free download. I believe the DFA equity funds will make at least 1% more than the similar Vanguard equity funds. The additional return is due to smaller average size companies and more deeply discounted value companies. The 1% fee is normal, although I know many firms that charge more and less.
- Why should I pay someone a 1% fee when I can simply put 10% in each of the nine no-load Vanguard funds you recommend?
- If the advisor uses DFA funds you will have access to funds that are designed to make more than similar Vanguard funds. As I mentioned in the last question, the large and small cap funds at DFA are smaller on average than similar Vanguard funds, as well as being more deeply discounted. Plus, if you hire a knowledgeable advisor you will get advice on the rest of the portfolio that can't be put into DFA funds.
- What are your thoughts about investing in the Tennessee 529 plan offering a DFA Small Cap fund (DFSTX) for a 2-year-old’s 529 investment? There’s about 15 year’s time before the money is needed, although granted we’d probably want to get more conservative before it’s needed to pay tuition and other expenses.
- I'm not opposed to including DFSTX in the portfolio but I wouldn't put all the money in one fund. The good news is your plan has a number of the equity asset classes I recommend. If you are going to change the equity/bond mix as your child gets closer to college, I think you should take a look at the glide paths of 529s that are run by Vanguard. While I wouldn't recommend their equity portfolio, I do think their balance of equity and fixed income is worth following.By the way, DFSTX is a small cap blend, not small cap value, fund. DFSVX is the DFA small cap value fund. What's the difference? DFSTX has a price to book ratio of 1.87 vs. 1.16 for DFSVX. According to MorningstarDFSVX holds 28% in small cap value, 35% in small cap blend and 30% in small cap growth. DFSVX is 50% small cap value, 32% small cap blend and 9% small cap growth. So what? The academics find that more deeply discounted value (lower price to book ratio) produces higher returns over the long term. For the 15 years ending Dec. 31, 2015, DFSTX compounded at 9% and DFSVX compounded at 10.4%. What is interesting is the 15-year standard deviation (volatility measurement) for the two funds was virtually the same.
- How I can find a DFA advisor who will open an account for my son? I’m planning to sell some individual stocks and use the money to open an account for my son. I intend to invest the money in the DFA small cap value fund. I need to find a DFA advisor who will open the account.
- I don't think any DFA advisor is going to open an account unless you personally have an account with the advisor. If I am correct in my assumption that means you have to find a DFA advisor that fits your personal needs. Some DFA advisors have minimums as low as $50,000, while others require $500,000. If I were in your position I would start by going to DFAUS.com to find an advisor that would take the amount of money you have to invest for your own needs. Once you meet with the advisor (depending on your needs, DFA normally gives the names of 3 firms in your area) and find there is a fit, then you can ask if they will accommodate the separate investment for your child. It may take a little time to find an advisor to help but it's worth the effort. If I were still an advisor I would provide the service for your child, if you were an account.
- I read your article about adding small cap value funds to the portfolio. If I had added a small cap value fund to my Vanguard 2060 Target Date Fund (401k), what impact would that have had on my return?
- The 2060 target date fund didn't start until January 2012, so there's not much history to compare. During 2015 the target date fund was down 1.7% but for the 3 years ended Dec. 31, 2015 it gained 9.4% a year. During 2015 the small cap value fund was down 4.8% but compounded at 12.8% over the 3 years. The increase in return was lower than expected historically as it only added .8 percent a year with a 25% position in small cap value. The study in "How to double your target date fund's return in a single move" projected a 1.5% advantage by adding a 25% small cap value position.