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It is currently Sat Oct 25, 2014 3:09 pm




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 Post subject: Replicating Total Market Index with Russell 1000 and 2000?
PostPosted: Mon Mar 25, 2013 4:44 am 

Joined: Mon Feb 07, 2011 6:33 pm
Posts: 1149
Location: Illinois
I'm working on rebalancing our investments across all accounts. Up until now, my wife's 401(k) had been almost entirely (97%) in a target date fund, but she's now comfortable with doing it different.

This account currently makes up roughly 2/3 of our investments, and the investment options do not include some categories (i.e. REITs) we want, so I need to put a good chunk into a total market index. The problem is, a total market index isn't an option either. The closest options are the Blackrock Russell 1000 and 2000 indexes.

The Russell 1000 is an index of the largest (by market capitalization) 1000 companies in the Russell 3000 index and represents about 92% of the market cap of the 3000 index

The Russell 2000 is an index of the smallest 2000 companies in the Russell 3000 index and represents about 8% of the market cap of the 3000 index.

The Russell 3000 (which isn't an option) represents 98% of the U.S. equity capitalization, so it would be an acceptable replacement for my Total Stock Index.

So the question, if the goal is to use the 1000 and 2000 indexes to replicate the 3000, do I allocate that portion between the two funds based on capitalization (92% in the 1000 and 8% in the 2000)? or do I equal weight them?


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 Post subject: Re: Replicating Total Market Index with Russell 1000 and 200
PostPosted: Mon Mar 25, 2013 7:30 am 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1953
Allocate based on capitalization if you really want to replicate the Russell 3000.

You might want to consider giving (slightly) more weight to small caps if you're willing to take on more risk in return for higher potential gains. The largest holding in the domestic portion of my own portfolio is the Total Stock Market Index, but I've used other index funds to weight the overall portfolio to tilt slightly toward small caps and value.


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 Post subject: Re: Replicating Total Market Index with Russell 1000 and 200
PostPosted: Mon Mar 25, 2013 7:33 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
Market Cap is one way and gets you 99% of the way there. Another option is if you want to tilt or slice&dice you can use the Morningstar 9 grid boxes, setup a spreadsheet and multiply by the % you want in each and sum them together.

I did this, and using your 92/8% numbers, it is a little off (less than a percentage point or so) in some areas compared to VTSAX (pick your poison). So, if you are tilting in other areas of your portfolio, you could use this to reflect that and then pick up some of the more "specialty" funds in the other 1/3 or so of your portfolio. Just an option for a bit more juggling.

And while I have a moderator's attention, why can't we post excel spreadsheets? I hosted this one on my blog, but GRS should stop being so cheap.

http://wp.me/a2h40p-6b

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Replicating Total Market Index with Russell 1000 and 200
PostPosted: Mon Mar 25, 2013 8:54 am 

Joined: Mon Feb 07, 2011 6:33 pm
Posts: 1149
Location: Illinois
Thanks both.

I do want significantly more weight in small caps, but until now, I've done that through separate funds (VSIAX and VSGAX), but that gives me something to think about. I could up the percentage in the 2000 and eliminate the two vanguard small cap funds, which would give me more room in my vanguard accounts to put into some of the more exotic options we want (REITs, Emerging Markets, International Value, etc.)
Quote:
And while I have a moderator's attention, why can't we post excel spreadsheets? I hosted this one on my blog, but GRS should stop being so cheap.

http://wp.me/a2h40p-6b

I don't know, an Admin will need to answer that, but thanks for the spreadsheet!


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 Post subject: Re: Replicating Total Market Index with Russell 1000 and 200
PostPosted: Sat Mar 01, 2014 11:02 pm 

Joined: Sat Mar 01, 2014 10:55 pm
Posts: 11
Bichon Frise wrote:
Market Cap is one way and gets you 99% of the way there. Another option is if you want to tilt or slice&dice you can use the Morningstar 9 grid boxes, setup a spreadsheet and multiply by the % you want in each and sum them together.

I did this, and using your 92/8% numbers, it is a little off (less than a percentage point or so) in some areas compared to VTSAX (pick your poison). So, if you are tilting in other areas of your portfolio, you could use this to reflect that and then pick up some of the more "specialty" funds in the other 1/3 or so of your portfolio. Just an option for a bit more juggling.

And while I have a moderator's attention, why can't we post excel spreadsheets? I hosted this one on my blog, but GRS should stop being so cheap.

http://wp.me/a2h40p-6b


New to the forum, sorry to revive this old post but I'm also in a situation where I'm limited in my 401k options and thus far it seems like the same two Russel 2000 and 1000 options are as good as it gets. I was looking at the spreadsheet you posted and the one part I don't understand is how did you come up with the numbers inside boxes? I get that they add up to 100 but for example, how did you know the Russel 2000 was 1 - 1- 5 across the middle?

Sorry if this is painfully obvious, again I'm new here just starting to learn. Thanks!


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 Post subject: Re: Replicating Total Market Index with Russell 1000 and 200
PostPosted: Sun Mar 02, 2014 6:10 am 

Joined: Mon Feb 07, 2011 6:33 pm
Posts: 1149
Location: Illinois
Morningstar des it for you. Look up the fund on Morningstar and click the "Portfolio" tab.

Here is the one for the SPDR Russell 1000 ETF:
http://portfolios.morningstar.com/fund/summary?t=ONEK®ion=usa&culture=en-US&ownerCountry=USA

The box is on the right hand side.

Edit: I saw your other post and noticed that you are in the WalMart plan which has it's own symbols which can't be looked up on Morningstar. You'll need to find a fund that it mirrors to look up the Morningstar info.


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