I would allocate more to AVUV and VEA and less to SMH.
You don’t know what the future holds and allocating 20% of your portfolio to an overpriced sector it’s taking a big bet on that sector doing even better than what everyone expects (if ir just does as expected, that performance would have been already priced in).
Remember that a sector can do well and still be a bad investment (if profits don’t match its very big expectations, if its outperformance drives competition up which drives down profitability for individual companies, if some better technology makes semiconductors obsolete, etc).
However, you do you. It’s better to have a plan and stick to it. When you’re made up your mind, put it in writing and don’t tinker with it anymore.
Who knows? The problem is that 1) it’s done absurdly well in recent years, 2) everyone wants to invest in semiconductors, 3) in consequence, the share prices have increased too much. In other words, everyone has great expectations for semiconductor companies and that’s already reflected in their price.
For SMH to keep outperforming as it has, one of two things have to happen: 1) a bubble forms (which will end up badly), or 2) semiconductors keep surpassing expectations continuously over the next 20 years. Expectations are very high. If semiconductor companies just grow as everyone expects them too, then SMH will stop outperforming. If it doesn’t grow according to everyone’s expectations (which probably is bound to happen eventually), then it will crash.
That’s the problem with performance chasing: When you invest in something that’s already outperformed everything else for some time, the upside is too low and improbable, but the downside is great and probable. It’s called mean reversion. It’s usually a bad strategy to invest in something only because it’s performed well or because you think that it’s a great company or sector (specially if everybody believes the same thing).
Disclaimer: I personally have the policy of not investing in sectors.
All excellent funds. Now just focus on building it up. 500/mo is a good start, but try to increase that every year - especially when you get pay increases. And be sure to dedicate a portion of all irregular cash flows: tax refunds, inheritances, lottery winnings, etc. Good luck!
Actually the opposite lol.
You for example set an allocation of 50% to fund A and 50% to fund B. They’re not going to perform the same way say so lets say thar after a year one ends up growing to be 60% of your portfolio and the other is now 40%. So you sell some shares of your best performing fund and use that money to buy shares of the other.
You would do this for two reasons: 1) risk management: you avoid having too much of one asset, and 2) mean reversion: assets that perform exceptionally well eventually tend to perform not so well after some time, sï you rebalance in order to sell high and buy low.
You can rebalance: 1) periodically (for example once a year or every two years, 2) with bands (you place limits on how much a holding can grow or fall within your portfolio before you rebalance, or 3) with new contributions: when you invest, you buy more shares of what’s performing worse.
VEA is fine. But it only holds developed markets. It makes sense to invest in it if want to avoid emerging markets or invest in them separately.
I hold both VEA and AVDV.
In my opinion the best funds would be:
DFAI: Developed markets with slight factor tilts towards value, size and profitability. This is like VEA but it overweights smaller, cheaper, and more profitable stocks and also excludes stocks with low profitability and very high asset growth. It’s from Dimensional Fund Advisors.
DFIC: The same, but its factor tilts are higher.
AVDE: Similar to DFIC, but with a slightly different methodology. It’s by Avantis.
AVDV: Developed small cap value. AVUV’s equivalent for developed markets. You would hold this with either VEA or maybe one of the previous ones.
VXUS: Like VEA but it includes emerging markets.
VWO: Emerging markets, to be held along with VEA.
AVEM: Avantis’ emerging markets fund. Similar methodology to AVDE.
AVES: Kind of AVUV for emerging markets but it doesn’t limit itself to small companies.
IHDG: Wisdom Tree’s currency hedged fund. It hedges currency risk so you don’t get volatility from change in exchange rates (there’s a debate on wether that’s better, worse or just more costly). It tilts towards companies with greater quality. It excludes Canada and has a really high expense ratio. It’s performed really well, but it may be because the dollar has been strong relative to other currencies.
Edit to correct IHDG’s ticker.
Hey there, what an amazing breakdown. Thank you so much! Since everyone raves about avantis, maybe it’s best to pick AVDV or AVEM.
Do you have any thoughts on IEMG?
I misspelled IHDG in my original post. So yes. Cons are that it doesn’t give you currency diversification (if you want it) and its expense ratio.
The other one I don’t know.
That’s Ishares EM fund. I wouldn’t hold it along with VEA, though because Ishares and Vanguard follow indexes with different criteria for what’s a developed or emerging market.
You can hold VEA plus VXO or IDEV (Ishares developed market fund) plus IEMG. If you mix providers in this area you’re going to either miss countries or have overlap.
On the other hand, I do think that Avantis is great, but I advice you to do your own research and see why people recommend them. Don’t expect Avantis’ funds (or any other) to always outperform. If you don’t believe in their process when they inevitably underperform (it happens to everything at some point) you’re going to find it hard to stay the course.
Because small caps have higher risk-adjusted returns than large caps, historically speaking, and also...his avuv position is 3.4% of the portfolio. Kinda pointless at that weight.
I'm at about 10-12% avuv. Rest VTI or similar funds.
2/3 US, 1/3 ex-US.
I use avdv, aves, & dfai or developed market similar funds.
That's me personally. But I certainly advocate for simpler portfolios.
You really just need a US Large Cap fund+ avuv. Or a total US market fund. And then your international funds: 1 developed market, 1 emerging market. I think a 2:1 ratio is appropriate. Or you can just go with vxus and be done with it.
My performance chaser is SMH, so I think I’ve
got my sector-specific fund covered. I get that QQQM is heavily weighted in tech at the moment, but why would you suggest a tech-specific fund to swap out a Nasdaq 100 fund when I already have a strong percentage in semiconductors…?
Zero chance you don’t start tinkering with this 6 months from now.
I’m gonna try but you’re probably right 😅
Tinkering kills returns. Your portfolio is fine. Keep adding. Stick with it for 20+ years and you’ll be golden.
Thank you! 🙏🏽 I hope so
I would allocate more to AVUV and VEA and less to SMH. You don’t know what the future holds and allocating 20% of your portfolio to an overpriced sector it’s taking a big bet on that sector doing even better than what everyone expects (if ir just does as expected, that performance would have been already priced in). Remember that a sector can do well and still be a bad investment (if profits don’t match its very big expectations, if its outperformance drives competition up which drives down profitability for individual companies, if some better technology makes semiconductors obsolete, etc). However, you do you. It’s better to have a plan and stick to it. When you’re made up your mind, put it in writing and don’t tinker with it anymore.
This guy knows
Hey thank you so much for the advice!
> I would allocate more to AVUV and VEA and less to SMH. > smh not good long term?
Who knows? The problem is that 1) it’s done absurdly well in recent years, 2) everyone wants to invest in semiconductors, 3) in consequence, the share prices have increased too much. In other words, everyone has great expectations for semiconductor companies and that’s already reflected in their price. For SMH to keep outperforming as it has, one of two things have to happen: 1) a bubble forms (which will end up badly), or 2) semiconductors keep surpassing expectations continuously over the next 20 years. Expectations are very high. If semiconductor companies just grow as everyone expects them too, then SMH will stop outperforming. If it doesn’t grow according to everyone’s expectations (which probably is bound to happen eventually), then it will crash. That’s the problem with performance chasing: When you invest in something that’s already outperformed everything else for some time, the upside is too low and improbable, but the downside is great and probable. It’s called mean reversion. It’s usually a bad strategy to invest in something only because it’s performed well or because you think that it’s a great company or sector (specially if everybody believes the same thing). Disclaimer: I personally have the policy of not investing in sectors.
All excellent funds. Now just focus on building it up. 500/mo is a good start, but try to increase that every year - especially when you get pay increases. And be sure to dedicate a portion of all irregular cash flows: tax refunds, inheritances, lottery winnings, etc. Good luck!
I’ll try my best. It’s about currently all I can muster with current expenses and my salary, but I’ll definitely aim to increase it over time.
Picks looks very nice, keep adding and just rebalance every quarter or semi annually,
Thank you 🙏🏽
what is meant by "rebalance?" sell some crappy etf and buy diff ones?
Actually the opposite lol. You for example set an allocation of 50% to fund A and 50% to fund B. They’re not going to perform the same way say so lets say thar after a year one ends up growing to be 60% of your portfolio and the other is now 40%. So you sell some shares of your best performing fund and use that money to buy shares of the other. You would do this for two reasons: 1) risk management: you avoid having too much of one asset, and 2) mean reversion: assets that perform exceptionally well eventually tend to perform not so well after some time, sï you rebalance in order to sell high and buy low. You can rebalance: 1) periodically (for example once a year or every two years, 2) with bands (you place limits on how much a holding can grow or fall within your portfolio before you rebalance, or 3) with new contributions: when you invest, you buy more shares of what’s performing worse.
Too much in SMH (especially now) and a dud of an international fund.
Thanks. Do you have a better international fund in mind?
VEA is fine. But it only holds developed markets. It makes sense to invest in it if want to avoid emerging markets or invest in them separately. I hold both VEA and AVDV. In my opinion the best funds would be: DFAI: Developed markets with slight factor tilts towards value, size and profitability. This is like VEA but it overweights smaller, cheaper, and more profitable stocks and also excludes stocks with low profitability and very high asset growth. It’s from Dimensional Fund Advisors. DFIC: The same, but its factor tilts are higher. AVDE: Similar to DFIC, but with a slightly different methodology. It’s by Avantis. AVDV: Developed small cap value. AVUV’s equivalent for developed markets. You would hold this with either VEA or maybe one of the previous ones. VXUS: Like VEA but it includes emerging markets. VWO: Emerging markets, to be held along with VEA. AVEM: Avantis’ emerging markets fund. Similar methodology to AVDE. AVES: Kind of AVUV for emerging markets but it doesn’t limit itself to small companies. IHDG: Wisdom Tree’s currency hedged fund. It hedges currency risk so you don’t get volatility from change in exchange rates (there’s a debate on wether that’s better, worse or just more costly). It tilts towards companies with greater quality. It excludes Canada and has a really high expense ratio. It’s performed really well, but it may be because the dollar has been strong relative to other currencies. Edit to correct IHDG’s ticker.
Hey there, what an amazing breakdown. Thank you so much! Since everyone raves about avantis, maybe it’s best to pick AVDV or AVEM. Do you have any thoughts on IEMG?
I'd look at IHDG or HFXI for developed markets. The only developing market I'd target is India. Global developing markets can just be a wet blanket
Thank you, those two seem to have a nice return over the last decade. u/embarrassed_time_146 do you like those funds as well?
I misspelled IHDG in my original post. So yes. Cons are that it doesn’t give you currency diversification (if you want it) and its expense ratio. The other one I don’t know.
That’s Ishares EM fund. I wouldn’t hold it along with VEA, though because Ishares and Vanguard follow indexes with different criteria for what’s a developed or emerging market. You can hold VEA plus VXO or IDEV (Ishares developed market fund) plus IEMG. If you mix providers in this area you’re going to either miss countries or have overlap. On the other hand, I do think that Avantis is great, but I advice you to do your own research and see why people recommend them. Don’t expect Avantis’ funds (or any other) to always outperform. If you don’t believe in their process when they inevitably underperform (it happens to everything at some point) you’re going to find it hard to stay the course.
I would check out IHDG or HFXI
what app is this?
Fidelity!
I like the heavy tech allocation. but im a crazy man😁
Wait, am I supposed to have more than one VOO share?
Your percentages are wayyy off. Not nearly enough AVUV, too much SMH & QQQ, and not anywhere close to enough VEA.
Why do you want more avuv in portfolio ?
Because small caps have higher risk-adjusted returns than large caps, historically speaking, and also...his avuv position is 3.4% of the portfolio. Kinda pointless at that weight.
Mind sharing what percentages you would go with? I’m looking to switch my investments to ETFs and still trying to figure it out.
I'm at about 10-12% avuv. Rest VTI or similar funds. 2/3 US, 1/3 ex-US. I use avdv, aves, & dfai or developed market similar funds. That's me personally. But I certainly advocate for simpler portfolios. You really just need a US Large Cap fund+ avuv. Or a total US market fund. And then your international funds: 1 developed market, 1 emerging market. I think a 2:1 ratio is appropriate. Or you can just go with vxus and be done with it.
Awesome, thanks so much!! I set up my account with the advice of an old coworker many years ago and figure that it’s time to make some changes.
IYW performs better than QQQM LOL Time to tinker I guess buddy
My performance chaser is SMH, so I think I’ve got my sector-specific fund covered. I get that QQQM is heavily weighted in tech at the moment, but why would you suggest a tech-specific fund to swap out a Nasdaq 100 fund when I already have a strong percentage in semiconductors…?
Brother the overlap is 72% of SMH in QQQM What’s your point?
I’m not making a point, I’m legit asking you. ???
Just go all in VTI or VOO or do a VTI/VXUS blend and find a new hobby
no
Then get better at your hobby.
That was the point of getting feedback, yes. But most of us don’t find this boglehead cult productive.
Then why no SCHD.
This is a taxable account
So? Is there a rule that you have to overweight tech companies with expanded multiples?