Doom scrolling and the next financial crash!

masonic

https://forums.moneysavingexpert.com/discussion/comment/82108258#Comment_82108258

Trustnet has tended not to be very good at classifying "non-subscribing" funds, which include many ITs.

Bostonerimus1

I realize that my flight away from Total Equity Markets dominated by tech is just the standard response of a retiree who wants to emphasize capital preservation over growth. So rather than being in volatile tech stocks I've moved into cash and value and dividend stocks. The new part of this is that the broad stock indexes have become dominated by a few high growth tech stocks.

aroominyork

De-risking is a standard response for most who have accumulated enough probably to see them through retirement. But most people in your position would also de-risk if they had hit their number and equities were less tech dominated. I think you conflate ‘equities dominated to tech’ with ‘equities’. Maybe tech has just been the trigger for you?

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/82108621#Comment_82108621

The bias of the S&P500 etc to tech has definitely spurred my changes; 40% in a single sector is scary. I'm still 67% equities which many people would see as aggressive for a retiree. I have DB pension, rent, annuity and SP to more than cover my spending so the asset allocation in my portfolio is a bit academic. My cash allocation is keeping up with inflation and I've moved out of tech with some of my equities because, even being a long term indexer, the arithmetic of AI debt seems unsustainable and the software folks I know who use GitHub and ClaudeCode are telling me that they were spending lots of money on AI code that is impossible to maintain so they are scaling back. My "BS" sensor also goes off when any of the tech CEOs start to talk so I want to scale back on the sector.

After my changes 14% of my entire portfolio is in tech stocks and that is 20% of my equities. I might go lower, as things start to unfold.

aroominyork

Many would agree with your folks and your sensor. The great unknown is the level of contagion across the market when the BS hits the fan.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/82108660#Comment_82108660

Well if things do go 🍐 shaped it won't be just tech stocks that take the hit, it will be construction, electricity generation and financials as well as the private equity investments of DB pensions. So my flight to value will still take a hit…and it will propagate across the globe as debt dries up and people cancel orders from Nvidia and ASML, hence my 22% (that's what my latest dashboard says) cash allocation.

GeoffTF

https://forums.moneysavingexpert.com/discussion/comment/82107194#Comment_82107194

You're conflating two very different strategies here: equal-weighting
a broad market index (e.g. S&P 500 Equal Weight) and a systematic
factor tilt like small-cap value (AVSG). Vanguard's article addresses
the former, which simply spreads weight equally across the exact same
large-cap constituents. AVSG filters for entirely different fundamental
risk factors (Size, Value, and Profitability).

Vanguard's article compares equal weight trackers market weighted trackers. In doing so, it highlights the risks and possible benefits of overweighting smaller stocks (which is what equal weighted trackers do). Equal weighted trackers do not include small cap stocks. Many of the issues that Vanguard discusses apply more even strongly to small cap stocks.

Individual small-cap value stocks are going to be more volatile than mega-caps in
isolation. But in portfolio construction, total risk depends on
covariance (how assets move relative to each other). Adding a small
allocation of a higher-volatility asset that isn't highly correlated
with large-cap growth does not automatically increase overall portfolio
volatility. It can actually smooth out portfolio-level returns over full
market cycles.

Adding a small amount of uncorrelated stock may indeed reduce portfolio volatility a little. People here are advocating adding a large amount of AVSG. Adding a large amount of more volatile stock increases portfolio volatility.

By "risk", you seem to be referring to volatility, rather than structural risk.

Future volatility is unknown, but it can be estimated from historical volatility. That works very well for options pricing. Volatility does not capture all the risks. YouTube is full of videos claiming that the high borrowing of the tech sector will lead to a global banking collapse. If that happens, I would not want to be overweight small high risk companies. Is there any evidence that small cap value stocks have outperformed in major stock market crashes?

aroominyork

People here are advocating adding a large amount of AVSG. Adding a large amount of more volatile stock increases portfolio volatility.

Who said that? I said 15%-20% of my US exposure - about 10% of my equity portfolio - is AVSG. masonic didn't quantify his holding.

GeoffTF

https://forums.moneysavingexpert.com/discussion/comment/82108916#Comment_82108916

Assuming 20% and that your exposure is from a global tracker global tracker, that is 0.15*0.65 = 9.75% to 0.2*0.65 = 13%. 10% FTSE) to 14% (MSCI) of the global equity market is classified as small cap. It looks like you are overweighting small cap value. It is up to you whether you think that the additional trouble and risk is worth it.

SnowMan

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/investing-success/three-new-global-equity-etfs

We’re [Vanguard] delighted to announce the launch of three new global equity exchange-traded funds (ETFs), marking a significant expansion of our global ETF range.

Leading the launch is the Vanguard FTSE Global All-Cap UCITS ETF, which provides a simple way to invest in companies of all sizes – from the world’s largest businesses to smaller companies – through a single investment.

We’re also launching an ETF that focuses on smaller companies from around the world and another that provides exposure to companies outside the US.

Together, the new ETFs give investors more choice in how they invest globally, while staying true to Vanguard’s commitment to long-term, low-cost investing.