Large vs mid/small cap portfolio allocation
One of the common themes that have come up in the 100 conversations project has been people telling me that they are passive when it comes to investing. Even if the person is very active when it comes to their budget, they might not be as active in managing investments.
I’ve been passive like that for a long time as well. More recently, I started exploring crypto investments, but still haven’t really become super active in the traditional stock and bond markets. I’ve been doing a recent
As part of this endeavor, I’ve been looking at how to better allocate my portfolio, which I’ve written about recently.
In particular, a financial advisor I spoke to suggested that I was over allocated in US large cap and particularly tech companies and should diversify towards more mid-cap and small-cap. I was kinda puzzled by this because I guess I had heard that as long as you invest overtime in SP500 and track the US stock market that would be sufficient. But now I’m starting to rethink this, especially in light of what I read last week.
A reader reached out with this explanation that has helped me understand where this financial advisor was coming from.
“It's about optimizing risk/return rather than being 'risky' by being over-allocated to the SP500. including some small/mid cap specific investments (15-20% of your equity allocation) can likely add return while keeping your risk relatively in check however, just being in the SP500 is fine. For a shift towards more small/mid cap, maybe investing in the Russell 1000 index would be a good option since it'll still be market cap weighted BUT you're capturing the next 500 biggest companies after the SP500. Russell 1000 is about 99% of the US Market (by market cap) while the SP500 is somewhere in the low 80%. To capture everything, there's always the Russell 3000 which is basically the entirety of the market but the additional 4000 stocks only add 1-.1.5% of market value.”
So from this and what I’ve been reading lately that I should indeed look a little more at spreading out investments towards mid and small cap rather than doubling down just on SP500. So I’ve been working on that lately… Maybe now is a good time to buy given the markets are down..?
Respond to this email and let me know what you think.
Money & Crypto
VC investors “telling the founders that they need to take emergency action for what could be the sharpest turn in more than a decade. Their advice includes cutting costs, preserving cash and jettisoning hopes that hedge funds or other investors will swoop in with big checks.” Doesn’t this basically just mean that you should actually be cash positive and not rely on investors’ checks as a way to bring in cash…? (WSJ)
Adjustable rate mortgages are back in popularity (WSJ)
“Stocks most popular with retail investors rose by 14% in the two weeks after [stimulus] cheques were received” (Economist)
How NFTs are being used with booking and transferring hotel reservations (WSJ)
The slippery slope of celebrities endorsing crypto without disclosing ownership stakes (NYTimes)
This article claims that bitcoin will decouple from tracking the SP500, but it hasn’t happened quite yet…so not really sure how much I agree with the article. I’ll have to see it to believe it! (CoinDesk)
Coinbase’s rocky launch in India continues (CoinDesk)
Etc.
📖 This incredible true story about an American woman who became one of the most important spies during WWII in France reads like a gripping thriller
🎧 I stumbled upon this true crime podcast CounterClock. If you’re a true crime junkie, this is highly addictive.
Podcast Pick of the Week
🎧 What’s going on with the real estate market right now? Real estate agent Anna Morgan of The Morgan Group explains how rising interest rates are affecting buyers & sellers, and if house prices are in trouble.
Disclaimer: All opinions are my own. The content on this site and on the podcast does not constitute financial, legal, accounting, tax, or investment advice.
