Why the "Total Stock Market" isn't anything of the sort

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Kevin K.
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Why the "Total Stock Market" isn't anything of the sort

Post by Kevin K. » Wed Nov 03, 2021 10:25 am

Fascinating blog post that shows how even "all world" stock index funds only represent part of the global equity market:

https://www.pragcap.com/the-us-stock-ma ... been-told/

Kind of makes me think that folks like Desert and Larry Swedroe who overweight small and emerging market stocks may be onto something.
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by Jack Jones » Wed Nov 03, 2021 11:48 am

Kevin K. wrote:
Wed Nov 03, 2021 10:25 am
Fascinating blog post that shows how even "all world" stock index funds only represent part of the global equity market:

https://www.pragcap.com/the-us-stock-ma ... been-told/

Kind of makes me think that folks like Desert and Larry Swedroe who overweight small and emerging market stocks may be onto something.
I do 50% SP500 and 50% Small Cap for the equities portion of my PP. I think it was MachineGhost who turned me on to it.
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by seajay » Wed Nov 03, 2021 3:33 pm

Jack Jones wrote:
Wed Nov 03, 2021 11:48 am
Kevin K. wrote:
Wed Nov 03, 2021 10:25 am
Fascinating blog post that shows how even "all world" stock index funds only represent part of the global equity market:

https://www.pragcap.com/the-us-stock-ma ... been-told/

Kind of makes me think that folks like Desert and Larry Swedroe who overweight small and emerging market stocks may be onto something.
I do 50% SP500 and 50% Small Cap for the equities portion of my PP. I think it was MachineGhost who turned me on to it.
Single index have their own risk, better to diversify across two indicies
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Vil
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by Vil » Wed Nov 03, 2021 3:43 pm

Jack Jones wrote:
Wed Nov 03, 2021 11:48 am
I do 50% SP500 and 50% Small Cap for the equities portion of my PP. I think it was MachineGhost who turned me on to it.
Isn't it the GB that suggest that also ? In my purest US-PP I am using MSCI USA (has sthg like 630~640 constituents vs tad less than 500 for the S&P 500).

This is an interesting article indeed, though for me its more interesting not the coverage of the world indexes and the percentage that US market takes of them, but rather the correlation between US market and the RoW markets. Have read some article suggesting that correlation has an U-shaped form in the recent history of the markets - i.e. high correlation in the beginning of the 20th century and its end/beginning of 21st.
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by Kevin K. » Wed Nov 03, 2021 3:47 pm

seajay wrote:
Wed Nov 03, 2021 3:33 pm
Jack Jones wrote:
Wed Nov 03, 2021 11:48 am
Kevin K. wrote:
Wed Nov 03, 2021 10:25 am
Fascinating blog post that shows how even "all world" stock index funds only represent part of the global equity market:

https://www.pragcap.com/the-us-stock-ma ... been-told/

Kind of makes me think that folks like Desert and Larry Swedroe who overweight small and emerging market stocks may be onto something.
I do 50% SP500 and 50% Small Cap for the equities portion of my PP. I think it was MachineGhost who turned me on to it.
Single index have their own risk, better to diversify across two indicies
Well, yes and no. If you do that comparison with different dates, the results are dramatically different. For example 2000-2021 S & P and SCV are a wash. More important though none of this has anything to do with the original post, which is about global investing, not slicing and dicing an all-U.S. portfolio.

The Golden Butterfly with its 50:50 TSM:SCV split covers the U.S. equity market in a way that is perfectly balanced according to Morningstar's style boxes and uses gold rather than international equities as the "international" diversifier.

Cullen Roche seems to be looking for a pure equity equivalent. Evanson's 10 x 10 seems like it comes pretty close:

US Large
US Large Value
US Micro or US Small
US Small Value
US REITS
Intl. Large
Intl. Large Value
Intl. Small
Intl. Small Value
Emerging Small
Emerging Value
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by jalanlong » Wed Nov 03, 2021 4:20 pm

I do 34% VOO (S&P 500) and then 66% VXF (Extended Market Index). That gives me almost an equal weight of large, mid and small using Morningstar's ETF size tool.
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by Kevin K. » Wed Nov 03, 2021 5:59 pm

jalanlong wrote:
Wed Nov 03, 2021 4:20 pm
I do 34% VOO (S&P 500) and then 66% VXF (Extended Market Index). That gives me almost an equal weight of large, mid and small using Morningstar's ETF size tool.
That seems like a nice, elegant approach. Do you have international as well or just use the U.S. funds?
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by Jack Jones » Thu Nov 04, 2021 9:11 am

Vil wrote:
Wed Nov 03, 2021 3:43 pm
Jack Jones wrote:
Wed Nov 03, 2021 11:48 am
I do 50% SP500 and 50% Small Cap for the equities portion of my PP. I think it was MachineGhost who turned me on to it.
Isn't it the GB that suggest that also ? In my purest US-PP I am using MSCI USA (has sthg like 630~640 constituents vs tad less than 500 for the S&P 500).
As others have mentioned, GB is SCV. I'm not trying to tilt towards value over growth...just trying to get a balanced piece of the market.
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by jalanlong » Thu Nov 04, 2021 9:48 am

Kevin K. wrote:
Wed Nov 03, 2021 5:59 pm
jalanlong wrote:
Wed Nov 03, 2021 4:20 pm
I do 34% VOO (S&P 500) and then 66% VXF (Extended Market Index). That gives me almost an equal weight of large, mid and small using Morningstar's ETF size tool.
That seems like a nice, elegant approach. Do you have international as well or just use the U.S. funds?
I do not use any international stocks because I feel like the PP (or the variation I run) is designed to respond to different conditions in the US economy such as recession, inflation etc. Introducing stocks from other countries adds in factors that may not be related to US economic conditions. I have never understood why people add in international stocks to the PP. If the answer is "more diversity" then why not add in international bonds, high yield bonds, real estate etc? Why only international stocks? But then it is no longer the PP and is more of just an general asset allocation fund.
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by Kevin K. » Thu Nov 04, 2021 9:54 am

jalanlong wrote:
Thu Nov 04, 2021 9:48 am
Kevin K. wrote:
Wed Nov 03, 2021 5:59 pm
jalanlong wrote:
Wed Nov 03, 2021 4:20 pm
I do 34% VOO (S&P 500) and then 66% VXF (Extended Market Index). That gives me almost an equal weight of large, mid and small using Morningstar's ETF size tool.
That seems like a nice, elegant approach. Do you have international as well or just use the U.S. funds?
I do not use any international stocks because I feel like the PP (or the variation I run) is designed to respond to different conditions in the US economy such as recession, inflation etc. Introducing stocks from other countries adds in factors that may not be related to US economic conditions. I have never understood why people add in international stocks to the PP. If the answer is "more diversity" then why not add in international bonds, high yield bonds, real estate etc? Why only international stocks? But then it is no longer the PP and is more of just an general asset allocation fund.
I understand and agree. I wasn't sure if you were using a straight PP but with a modified stock allocation or something else entirely. Tyler has written about not needing international equities in the GB or PP because gold, being the epitome of a globally-valued asset, already provides the "international" diversification as well as being uncorrelated with stocks and bonds (unlike international stocks when tend to tank even worse than U.S. equities during market meltdowns).
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by mathjak107 » Mon Nov 29, 2021 8:18 am

a total stock market fund is really a glorified s&p 500 fund …unless you get an unweighted version the s&p stocks dominate it .

it is no different than a total bond market fund is anything but total .it lacks so many segments of the bond market
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by Cortopassi » Mon Nov 29, 2021 7:58 pm

In shorter time frames VTI is about = to SPY.

Maxed out, Total Stocks seem to be doing better.

Image
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Re: Why the "Total Stock Market" isn't anything of the sort

Post by Dieter » Mon Nov 29, 2021 8:32 pm

jalanlong wrote:
Thu Nov 04, 2021 9:48 am
Kevin K. wrote:
Wed Nov 03, 2021 5:59 pm
jalanlong wrote:
Wed Nov 03, 2021 4:20 pm
I do 34% VOO (S&P 500) and then 66% VXF (Extended Market Index). That gives me almost an equal weight of large, mid and small using Morningstar's ETF size tool.
That seems like a nice, elegant approach. Do you have international as well or just use the U.S. funds?
I do not use any international stocks because I feel like the PP (or the variation I run) is designed to respond to different conditions in the US economy such as recession, inflation etc. Introducing stocks from other countries adds in factors that may not be related to US economic conditions. I have never understood why people add in international stocks to the PP. If the answer is "more diversity" then why not add in international bonds, high yield bonds, real estate etc? Why only international stocks? But then it is no longer the PP and is more of just an general asset allocation fund.
>> "I have never understood why people add in international stocks to the PP."

I'm more PP influenced than pure PP, but, coming from a Boglehead style portfolio, I roughly kept how I distributed my stock allocation.

50% TSM, 25% SCV, 25% ISB (stocks are about 40% of what I consider my PP-ish allocation)

But, yeah, should probably have just made it 50/50 TSM / SCV
(of course, with hindsight, 100% SP500 I think has been the best performer of the three since mid-2012, which is when I bought my first Gold -- IAU)
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