Goodbye Total Market … Hello small caps


The week has been difficult, so I'm writing less than usual. The good news is that I have a lot of ideas for future articles.

I've recently had a bit of an epiphany. For years, I invested in Vanguard's Total Market Index (VTI). My philosophy was: hold all the shares in one low-cost purchase. It's such a boring thought that almost everyone agrees that it's a smart decision. In fact, half of you have probably stopped reading this. That's how boring it is.

I still think investing in the TIV is a good way for many of them, but I think I'm changing my asset mix.

The "problem" with VTI is that it has become extremely heavy in a few companies. You can see the funds here. You have scrolled through the screen a bit and look to the right, but you will see that the top 10 holdings account for 18.70% of total assets. Five of the six largest companies are technology companies … big names such as Apple, Microsoft, Amazon and Google.

I do not see any of these companies disappearing so soon, but it's a lot of eggs in this very concentrated area.

And if we invest in a different way. And if we were looking at the Vanguard Venture ETF, VB. The funds are here. (Same case, you have to do a little scrolling and look right.) The top ten positions are not popular names. These are small businesses after all. What particularly strikes me is that the top 10 stocks make up only 3% of the index.

If one of these companies disappears, it will not reduce it much. So, is not it more diverse? Nor does it seem that all firms belong to the same sector.

Finally, it could be argued that small businesses may have more leeway to increase their profits and increase.

I do not know how I arrived at this epiphany, but I partly thought about the value of the local purchase. Buying a small cap index is not particularly local, but in the total market, some large companies probably do not need my investment. (The smaller ones would also laugh at the fraction of a share purchase.) It's like I'm investing more in the parent and pop companies that I'm investing in small caps.

What does it mean to actually invest in performance? Probably not much. In the long run, the two indices are strongly correlated, so I think maybe too much of that.

In fact, I would still like to have some money in VTI, but I think I could do more of a 50/50 mix instead of the 90-10 that I currently have. What are your thoughts? Let me know in the comments.