The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Retirement Investing


Subject:  Re: Where do mid-cap indexes fit in to allocatio Date:  2/3/2011  10:47 PM
Author:  DrTarr Number:  68389 of 102711

As for midcaps, you all seem to be implying that a mid-cap fund is generally a bad idea (or can be easily replaced by a large-small combo)

Yes we are!

Not so much a bad idea or good idea - but lets use the morningstar X-ray tool and put in the Mid Cap fund JMCVX and find out just how much Mid Cap there really is in there.

Value Core Growth
11 22 12 LARGE = 45%
17 17 10 MID = 44%
5 5 3 SMALL = 13%

Seems to already be a good chunk of Large Cap -eh? So If you do a Large Cap and a Mid Cap??? You would be way over the top on the large - and very little small (almost the same as the Total Market).

Proforma - what if you put you hard earned dough in a Small Cap JSCVX and Large Cap JPLTX. (50/50) You would have:

Value Core Growth
15 22 9 LARGE = 46%
8 8 7 MID = 23%
10 11 10 SMALL = 31%

That would give you a good chunk of the Mid. IF you wanted to split the difference on the Small and Mid, do 58% Small & 42% Large and have
LARGE = 38%
MID = 24%
SMALL = 25%

Or if as mentioned you went with VTI (Total Market) you would have approximately -
LARGE = 70%
MID = 20%
SMALL = 10%
then just add small til you get whereever you want to go!

So Mid is easily replicated with other positions:

Risk return - Well the return piece (based on historical data - blah blah) fits more towards the Small Caps over long periods of time. But there is a lot of talk about Large being the place to be right now (see below) - so pull out the crystal ball.

We can definitely also compare some recent history to see how the three have tracked. Looking at 2004 to present, I would eyeball only about a 5% difference in Mid and Small Cap. And since the "not so great depression" Large caps have about 40% to go to catch up to Small and Mid. hence the "place to be" in some pundits eyes.....

JKD - Large Cap
JKG - Mid Cap
JKJ - Small Cap

So lets say 35% (lets use JLC's numbers) to that part of the portfolio:

And 35% Foreign: That you might consider both developed markets (UK, Germany, Egypt :) and emerging markets (BRIC's - love that goldman term so financial sounding) you sound like you would probably lean toward emerging - --

20% REITS - well that is about where I am at so I like, maybe alittle less 18% or so but now we come to the final section BONDS!! A funny thing about investing in bonds - you know almost surely what you are going to get UPFRONT! Take advantage of that. To me (not a recipe for everyone) bonds are not very attractive until the mid term investment grade gets back up over 6%. And it may never happen again :) Because, upfront you are locking in a rate of return that I am willing to RISK someplace else and right now that other place is high yield and commodities. (high yield on hold because of my expectations on interest rates)

So - 20% commodities: Generically across several items with a focus specifically industrial metals - good diversification from the equities so you should get a reduction in portfolio volatility - if you can short coffee and go long lean hogs in your 401(k) let me know... otherwise maybe an ETF on industrial metals - if you are a beleiver you could go the precious metals route. I do think Pd has better upside as the Au/Ag you feel kinda bubbly to me!!!
Copyright 1996-2021 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us