How can the combo of S&P 500 and Small Cap Value be less risky than the S&P 500 by itself?

Paul Merriman and Chris Pedersen, Director of Research for The Merriman Financial Education Foundation, address a number of topics and questions:
• Is the combination of the S&P 500 and Small Cap Value really more risky than the S&P by itself?
• Why the exceptional performance of Chris’ Best In Class (BIC) during the first 6 months of 2022?
• If small and value outperformed large and growth, why did the Total Market Index underperformed the S&P 500 by more than 1%?
• Are the higher costs of the Avantis Funds likely to pay a higher premium than lower cost Vanguard funds?
• A first time investor, who has invested in Avantis Small Cap Value ETF “for life,” wants to know, “Can I plan on leaving it in this fund forever?”
• Jeff, a follower of our Foundation’s work, thanks us for our educational material but states that “the past results you spend so much time reviewing” have nothing to do with how he invests. Paul addresses who he thinks is actually keeping Jeff committed to his asset allocation.
• Is it better to own mid-cap funds instead of a combination of small- and large-cap funds? Paul and Chris each share their beliefs in response to this common question.
Much of this podcast/video is focused on a discussion of DFA and Avantis ETFs. Using both Portfolio Visualizer and Morningstar websites, Chris explains the major factor differences.
Chris recommends Rob Burger’s video discussion of Avantis Small-Cap Value. • Does the Avantis Small...
Rob Berger, lawyer, investor, podcaster, blogger and author of Retire Before Mom & Dad, is one of our Truth Tellers and we will be writing about him in the coming months. Since 2007, Rob has run the financial blog doughroller.net and contributed to Forbes, US News, AOL, and Business Insider and been featured in HuffPost.
For more on Chris’ research results for the first 6 months of 2022, see -
paulmerriman.c...
Sound Investing Portfolios Chart-
paulmerriman.c...

[@claricehirata3303]

As a beginner DYI investor (about 2 years managing my own portfolio at age 64, not retired yet) I LOVED this video. Lots of great info and comparisons that are not readily available, and I really appreciated more details using Morningstar and Portfolio Visualizer for research and comparison of funds beyond what I have learned from Rob Berger. I have been following Rob for the past 2 years (tremendously helpful) and am new to following this channel. As I learn more, I can digest the deeper dive that Chris goes into, and really love how Paul inserts comments and clarifying questions...it's all so fascinating and helpful with making consequential decisions AND being able to sleep at night, thank you so much!

[@animaldonut]

I agree, it’s always good to learn more about investing. I recently did a video on my channel about the small cap value ETF AVUV. You might like to check it out.

[@gabrielenicolini5988]

Thank you both for your immense passion!

[@stiltrippin0]

I love Paul’s podcasts but I wish they could be condensed down to 30 minutes. Way too long and a little dull

[@CapCityDC]

agree, good info but hard to follow over 60min.

[@Rational_Investor]

I listen to them at 1.25x speed and it is very understandable...could probably even go to 1.3-1.4x speed when one listens to them. The quality of the presentations are all really interesting and informative!

[@dhruvdnar]

I look at it as a different kind of format. More like a hangout with friends

[@kutayecevit4125]

The most advanced analyses I have seen on you tube on factor investing. Thank you Chris and Paul.

[@Bobventk]

Bro look up Ben Felix lol.

[@cfoley123456]

Thank you! Can’t wait to listen. Just emailed you this morning. 2 Funds for Life is a great book. 👍

[@maixiong1787]

Thank you so much. Great informations. Did the two Funds for Life for my two teenagers at age 15. I Will be helping my niece open a account this week now that she got her first paycheck.

[@amirsinno5833]

Thank you always for your videos it helps a lot in building our financial independence.

[@nerdlife206]

By the way, thanks a lot for explaining the Factor Regression tool. I've learned some new things even though I've been using it for a while :)

[@williamcruz5869]

Extremely helpful to see you work it through Portfolio Visualizer . Thanks!

[@SmallAirplane]

Chris mentioned large cap growth does better with low inflation - I believe that hasn't been the case recently. Any thoughts/ comments?

[@castroeladio]

I am a bit confused that you endorse to pay higher fees

[@michaelswami]

The higher fee is more than offset by the return advantages.

[@nerdlife206]

Do you think you'd have any issues trying to Tax Loss Harvest between the two? (AVUV and DFSV)

[@Bobventk]

No

[@nicholas5396]

What always bugs me is when people backtest they do a lump sum. Reality is most retiremnt accounts get added to on a weekly, bi-weekly, or monthly schedule. Thus to see a more realistic backtest, which often will vary drastically from a lump sum one time investment, i wish they would show DCA addtional investments on the backtests.

[@raylo996]

It doesn't change things all that much, especially once your portfolio gains start outpace your contributions.

[@Byssbod]

Id like to see the data so I can know that it doesn't do much

[@raylo996]

@@Byssbod ovver the long term it doesn't do a lot, over the short term it can do a lot, think of 1--10 years vs 20-30

[@jasonhobbs2405]

Thanks so much, you two! Great content! I’d love a video on your opinions of NTSX, NTSI, NTSE.

[@TheOrangehar]

What is the name of the large cap blend fund that they are talking about instead of the s&p500 fund?

[@paulpoco22]

Someone needs to take this and apply to Canada.

[@rajvo7406]

Is Avuv an actively managed fund? What's the expense ratio?

[@grigorirasputin425]

Did google blocked your access?

[@rajvo7406]

​@@grigorirasputin425 yes. That's why I'm asking crooks like you to tell me

[@grigorirasputin425]

@@rajvo7406 Rajvo you drunk, go to sleep 🤡

[@smallpeople172]

Do you two know each other?

[@rajvo7406]

@@grigorirasputin425 it did

[@Bobventk]

The size and value premiums are as real as the market premium. Saying “the size and value premiums don’t pay out every year” is not a reason to tilt towards them. You could say the same thing about the market premium.

[@Bobventk]

It’s not just the past. It’s the theoretical explanation for WHY the past happened. Efficient markets and discount rates.

[@massimonegrini]

What I think we may see in the next couple of months is a shift from risk-free to riskier stocks (and other asset classes as well), as the market becomes more comfortable with inflation. The flow of liquidity towards risk will most likely involve the removal of money from the "safest" games on the market, or from "hiding places" (j & j, proctor and gamble for example) and from big techs, resulting in sharp drops in the shares they have. right and accumulate in riskier assets as money rushes.

[@alexbradbury5967]

These are the conditions under which life-changing money is made for those who remain calm, are patient and take controlled risks. Volatility goes both ways. The larger the red candles, the larger the green ones. I want to build a diversified portfolio on stocks / cryptocurrencies based on my person. I am easily triggered / very emotional and that could be bad for my wallet. I would like to be a patient and systematic person. day trading is not for everyone and the multi-year holding is not for everyone. I know my strengths, that's why I need a proper guide to be able to venture.

[@lucaseverett99]

I had my share of ups and downs when I started looking for consistent passive income, I finally called a consultant (DOROTHY DONNA TAGLIENTE) for help and, following his advice, I poured $ 30k in stock of value and digital assets, up to $ 200k so far !!! worry free retire next year.

[@alexbradbury5967]

hanks for the information, but any clues as to how I can contact Ms. Dorothy?

[@lucaseverett99]

Input her full name on your search engine it will direct you to her website

[@steve53LY]

In OZ ? @@alexbradbury5967

[@Michaeldotcom33]

These are good mental exercises and I appreciate the work finding the best in class but what about the emotional side? The mind and emotions need to match. I will attempt to buy AVUV for the next 5 years and let it sit until retirement. Wish me luck I’ll need it lol

[@Reem.Digital]

Thanks

[@blackfiree91]

Chris: don’t trust, verify. Bitcoiners: don’t trust, verify.

[@Bobventk]

Talk more about market efficiency. It is the answer

[@kosi42]

Thanks guys, I didn't know about the Morningstar and PortfolioVisualizer thing. I'm AVLV / AVUV / AVDV at a 2:2:1 ratio right now, but probably going to eliminate AVLV.

[@Kenster-man]

If you're going to eliminate AVLV do you have exposure to some large cap stocks elsewhere? It would be difficult to hold just AVUV / AVDV. More power to you if you can do it for the long-term.

[@paulpoco22]

Only problem is some of these funds are really new

[@animaldonut]

Hey, I’m a fan of AVUV as well. I just made a video about it the other day.

[@animaldonut]

@@paulpoco22 that’s true, but it’s not a stock picking fund and with more than 700 holdings in the portfolio. I feel it’s not too risky. Good overall exposure to the small value asset class. I just made a video about that ETF if you’d like to check it out. It’s updated to reflect the latest holdings as of January 2024.

[@colinjames9562]

Anybody have experience with FISVX with Fidelity?

[@grigorirasputin425]

Don't hold it in taxable because of capital gain distributions

[@doug2731]

To those folks going all in on Small Cap Value, I hope Volatility doesn't strike as you retire. It may tend to return more over the long run than Total Market, but you're playing with Market Timing- assuming your Small Cap Value ETF will be rising and steady at retirement age.

[@davec3974]

Generally, the idea is to reduce your relative exposure to small-cap value (and equity in general) as you near retirement. You don't have to sell your small-cap value to achieve this, just make your stock/bond purchases increasingly conservative over time.

[@davec3974]

@@ib12541 I plan on being mainly in low beta stocks and bonds to fund my retirement. If I'm saving for any young ones in my family I'd dial up the risk as if it was myself at that age.

[@jasonhobbs2405]

In my opinion, and in Paul’s personal portfolio, you stay small cap and value tilted regardless of age, allocating more to bonds as you get older. A KZbin video titled “five factor investing with etfs” by Ben Felix explains why, if you’re interested.

[@davec3974]

@@jasonhobbs2405 I think that's a good strategy providing 1) you've accumulated enough wealth to never be a forced seller of your small-cap value stocks, and 2) you have the mentality to tolerate a 60%+ crash and a potential decade of underperformance for part of your portfolio when your investments are your only source of income.

[@jasonhobbs2405]

@@davec3974 in the video I referenced, Ben Felix uses the literature to show how exposure to factors improves your odds of experiencing a good return over a given time period, because the factors yield their premiums at different times. Hence why you’re better off staying factor tilted but increasing bond allocation to decrease your max drawdown, rather than decreasing your factor tilts.

[@oferzeira8125]

Great content 🌹🙏

[@Bobventk]

The size and value premiums are real… most long term people should absolutely tilt. But PLEASE stop bringing up past 6 month returns Paul. That’s the type of behavior that people need to be coached OUT of, not reinforced

[@paulpoco22]

Need lower fee ETF choices? The lower fee alway wins.

[@randallgilliam4983]

Fantastic work, keep it up please. I appreciate it.

[@paulburbank9496]

Human nature evolved thousands of years ago. It is a constant, stable on a mere thousand year scale. We still behave so as to be the most likely to survive in a stone age hunter-gatherer environment. Stock market historical data measures the actions taken by this prehistoric human nature. We will continue to trade and invest as our ancient ancestors did for thousands of years to come.