Comments on: Total Market Index vs. Sector Investing

By: Allison

Allison — Thu, 10 Jan 2008 20:38:57 +0000

Hi JLP,

I am a conference producer with Financial Research Associates and am producing our 8th Annual ETF Summit. I would like to talk to you about your sector strategy using ETFs.

If you are amenable please email me and we can establish a time to discuss.

By: Weekend Update: Dark and Stormy Night Edition ∞ Get Rich Slowly

Weekend Update: Dark and Stormy Night Edition ∞ Get Rich Slowly — Mon, 03 Dec 2007 06:38:10 +0000

[...] At heart, JLP is a numbers nerd. Recently at All Financial Matters, he’s been comparing the performance of a total market index fund to investing in ten sector-based funds instead. Yes, it’s geeky, but I actually find it kind of interesting. [...]

By: Total Market Index vs. Sector Investing - Part 2—� AllFinancialMatters

Total Market Index vs. Sector Investing - Part 2—� AllFinancialMatters — Mon, 03 Dec 2007 06:00:25 +0000

[...] As promised, here’s my follow-up to last week’s post, Total Market Index vs. Sector Investing. In that post, I mentioned that a spin on investing in the Dow Jones Total Market Index (TMI) would be to buy equal allocations of the ten sectors that make up the TMI and rebalance them annually. I also mentioned that such a strategy would have performed quite well this year since the strategy would have only held a 10% stake in the financial sector while the TMI had a 17% allocation. [...]

By: Swim Upstream to Wealth

Swim Upstream to Wealth — Mon, 03 Dec 2007 02:25:36 +0000

This is a unique idea, but I fear that the transaction and tax consequences will eat up the difference between the strategies. Of the three factors that make up your return (asset class performance, fees, taxes), you control two of them – fees and taxes.

The other factor to consider is by buying equal segments of each sector you will reduce the market cap size of your holdings. This means you holdings may look more like a mid-cap fund than a large cap (or at least it will lean that way). Historically, the smaller the capitalization the higher the return…and also the risk.

By: » Beware Hindsight in Investing Strategies on Blueprint for Financial Prosperity

Fri, 30 Nov 2007 21:51:01 +0000

[...] JLP wrote a post today about how he prefers to invest in each of the market sectors equally, instead of going the route of some total market funds and weighing them based on market capitalization. He illustrates this point by highlighting the fact that the iShares DJ Total Market Index Fund (IYY) has over 17% invested in the financial sector, which has been taken out to the woodshed as of late. See? His strategy of equal weight has prevailed! [...]

By: Mike

Mike — Fri, 30 Nov 2007 14:02:36 +0000

check out kudlowsmoneypolitics.blogspot.com and scroll down to Kudlow 101 to see how international vs. US investing has fared. Facinating.

By: Get Rich Or Die Trying » Blog Archive » 5 Posts From Around The Web (Week of November 26, 2007)

Fri, 30 Nov 2007 13:34:46 +0000

[...] Total Market Index vs. Sector Investing – JLP @ AllFinancialMatters looks at what’s behind IYY and why it might be better to invest in separate sector funds. [...]

By: MossySF

MossySF — Thu, 29 Nov 2007 09:47:43 +0000

It may be out of weight to the total stock market but the degree of difference isn’t that significant. What you do get is the rebalancing bonus — sectors go through booms & bust all the time. Holding a cap weight index means you go up and down with them while equal sector weight allows you to skim off profits during booms and increase your share in sectors when they are bargains.

The tradeoff is taxes and trading expenses. Instead of buying VTI at 0.07% ER, you end up holding iShares sector ETFs at 0.50% and Vanguard sector ETFs at 0.25%. Add in trading fees, taxes for rebalancing in taxable accounts (when you don’t have new money to rebalance) — it probably isn’t too far off from holding the total market anyways. In return for the extra complexity, what you do get is lower volatility from rebalancing and keeping your AA on target even when the overall market AA has gone totally out of balance.

Rydex also has several equal weight ETFs which does all the rebalancing work for you but you can’t control the allocation or optimize reblancing by using new contributions. On the otherhand, it’s an easy shortcut under an IRA brokerage account.

By: muddlehead

muddlehead — Thu, 29 Nov 2007 05:31:47 +0000

“If what you are doing works for you, then keep doing it.” back at ya, bra

By: Zook

Zook — Thu, 29 Nov 2007 04:20:43 +0000

Love the pdf of the S&P 500 sectors…That is awesome…