Gyroscopic Investing

Thought this article by Rick Ferri was interesting in several respects, starting with the decline in the number of publicly-traded companies. I wondered what the many brighter-than-mine minds on this board would think of using Ferri's 3 ETF portfolio as a broader and presumably more representative substitute for TSM funds in the PP:

http://www.rickferri.com/blog/investmen ... portfolio/

I continue to believe a total stock market portfolio is the most efficient way to capture market returns. If someone really wanted to small value tilt that is fine. Just do it with an index fund like the S&P 600 Value index. Also be patient because index tracking error may happen for many years at a time (sometimes to your benefit, but sometimes not). Personally I'd be more inclined to split the US/International stock allocation above splitting the US allocation only.

Also the decline in publicly traded companies is not a worry to me because it's unclear what it really means to the top companies. So the top 500 companies account for something like 80% of total market value. The last 20% is made up of the remaining thousands of companies. Those companies therefore each make up a very tiny slice of the remaining value. I mean it's fractions of a percent at most! So does it really matter that the number went down by 1000 companies? They could have just been weak. Or maybe they were bought. Or it could simply be the Sarbanes Oxley has made going IPO such a mess that they just don't want the hassle. That doesn't mean they won't contribute to the profits of those that are publicly traded.

As for REITs, I still consider them speculative. By owning stocks you own companies. Those companies often have huge exposure to real estate though their business operations (factories, offices, farmland, etc.). REITs kind of straddle the hard asset and stock bands.

Lastly, if you are holding these assets in a taxable account the small cap and REIT index are going to have much higher tax loads on average. The excess returns could very well be turned over to Uncle Sam at the end of the year. Not to mention the higher costs of rebalancing internally amongst them which a total stock market fund won't have.

Overall I still believe that splitting up the stocks is not nearly as useful as the major stocks, bonds, cash and gold assets in the portfolio. I prefer not to overcomplicate things.

I know it's not TSM, but the S&P 500 is dependent on 14% of its revenue through Europe alone.

That's literally all I know about it, but assuming there has to be a decent chunk of non-European exposure, maybe we can assume at least 20% of the S&P 500's revenues come from overseas.

Take what you will from that.

In" "Fail Safe Investing", HB commenting on your investment portfolio says, "keep it safe and simple".  I believe that simple is best.  If you must tinker, do it with your VP.  Less moving parts within the PP will give you less reason to tinker.

I can buy the basic argument.  Whether I'd do that or not... Nah.

This is one of those things like holding SHY or I bonds or some blend in place of only 30 day T bills or holding 50% in 5 year treasuries or holding some zeros etc etc.  It is a benign tweak that probably improves returns a little bit more (or does not meanigfully hurt you) but it represents another layer of complexity, and it represents much less value relative to your efforts than the major things like true diversification.

I haven't the patience to play slice and dice.  Kudos to those who do.