Investing
Building a Small Cap Value Portfolio With ETFs
The FIRE community loves total market simplicity, and for good reason. Some investors want to go a step further by adding a small-cap value fund to the mix.
This one covers the case for the tilt, the trade-offs that come with it, and how to implement it without turning your portfolio into a science project.
What the article covers
- The historical and academic case for small-cap value
- The trade-offs, including tracking error and long stretches of underperformance
- How to implement a tilt with a small number of ETFs
- How to size the allocation so you can actually stick with it
Key takeaways
- 1A small-cap value tilt is a bet you have to hold through years of lagging the total market.
- 2Position size matters more than fund choice. A tilt you abandon is worse than no tilt.
- 3There is no free lunch. The extra expected return comes with extra volatility.
Who this is for: FIRE-minded investors deciding whether to go beyond a total market index fund.
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