Larry Swedroe (who I highly respect!) has often explained that when you invest in the Total Stock Market only, you’re exposing yourself to just a single risk: “the market.” He seems to believe that a well diversified portfolio should have exposures to many factors, and not just the market.
However this seems to contradict many financial authors and even Jack Bogle himself, who believe that a Total Market Index Fund is all you need.
Wouldn’t the Index Fund already have exposures to all of the factors? Or is it too heavily concentrated in the biggest stocks? Is that his point?
Larry says “Given the premise of market efficiency, many investors seek to diversify their portfolios in order to reduce the dominance of the market risk factor. That leads to heightened interest by investors seeking to harvest other premiums and create more of a risk parity portfolio by investing in factor-based mutual funds and exchange-traded funds (ETFs). Today, there are trillions of dollars invested in such vehicles. The equity factors that attract the most attention from academic research are size, value, momentum and profitability/quality.”
I also read that Swedroe once revealed “My own portfolio is about 40% alternatives. I invest in things like private debt and drug royalties.” So he may have a much different approach to investing altogether than most of us discuss on Bogleheads.
However this seems to contradict many financial authors and even Jack Bogle himself, who believe that a Total Market Index Fund is all you need.
Wouldn’t the Index Fund already have exposures to all of the factors? Or is it too heavily concentrated in the biggest stocks? Is that his point?
Larry says “Given the premise of market efficiency, many investors seek to diversify their portfolios in order to reduce the dominance of the market risk factor. That leads to heightened interest by investors seeking to harvest other premiums and create more of a risk parity portfolio by investing in factor-based mutual funds and exchange-traded funds (ETFs). Today, there are trillions of dollars invested in such vehicles. The equity factors that attract the most attention from academic research are size, value, momentum and profitability/quality.”
I also read that Swedroe once revealed “My own portfolio is about 40% alternatives. I invest in things like private debt and drug royalties.” So he may have a much different approach to investing altogether than most of us discuss on Bogleheads.
Statistics: Posted by TrustTheMarket — Thu Aug 08, 2024 7:42 am — Replies 6 — Views 758