Meet with PWL Capital:
Before attempting to implement these portfolios, please read this: Why It Would Be Ludicrous To Invest In These Model Portfolios
Larger companies like Apple and Tesla make up a larger portion of the market compared to smaller companies, and these relative weights are reflected in a market capitalization weighted index fund. Letting the market dictate your portfolio weights has lots of advantages, but pushing the fundamental logic behind index investing one step further leads to the potential for significant improvements in portfolio construction.
Referenced in this video:
Five Factor Investing with ETFs:
The relationship between return and market value of common stock:
A Five-Factor Asset Pricing Model:
Timestamps:
0:00 Market Capitalization Weighted Index Fund Explained
1:00 The Efficient Market Hypothesis
3:25 Let’s Get Back to Basics
4:51 Capital Asset Pricing Model (CAPM)
6:40 Empirical Anomalies in the Market
8:56 Risk Premiums
12:30 What I do with my Own Money
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I may disagree with some of Ben's stuff. But at least he believes fundamentals are king. That's probably the most important thing. And he's sharing his view without ulterior motives. That's good too
Ngl I am usually fine with jargon but I'm struggling here. Could you plz try skipping some of the technical names occasionally?
This video covers a lot of the history. Could you skip some of the history in future plz? I'm very happy to hear the justifications for each factor. But in story form it takes a lot longer
Your content would be a lot better if you stopped using financial jargon. You are alienating a huge amount of people who don't know what that bs means.
What other ETFs do we need besides VTI? And what percentages of each
So… what’s the simple, actionable advise? Is it.. just split the portfolio on 3-4-5 dimensional ETFs targetting different factors… and… leave it there for long term? Rebalancing…. Or maybe that’s secondary – maybe just let them drift….?
Ben, a question. All these studies are valid only for the stock scenario, right?
Do you have an opinion about active management in hedge funds?
Thanks a lot Felix! Your educational content is highly valuable.
I hope your content gets more visible by the day so that more people can invest with 'Common sense'. Thanks again Felix and looking forward to more great content.
Trying to simplify this – value stocks can outperform indexes. My strategy right now is to invest the majority in a market-cap weighted index fund and the rest (small amount) in value stocks that I personally picked that are not in the index that I expect will outperform the index over 10 years.
Looking at the paper. For Americans, how do we feel about subbing Vanguard VBR (U.S. small value) and VSS (ex-U.S. small value) instead of the Canada-listed factor funds?
I looked for the AVDV through Wealthsimple but for some reason it's not eligible for settlement in Canada. Is there another ETF that would serve the same purpose and available in Canada?
Watched this after reading "Trillions". Great explanation! I am going to implement the portfolio you outlined in your paper… Thank you so much for this incredibly valuable information!
Maybe I'm missing something but I put his six recommendations against XEQT into buyupside's DCA calculator and his six recommendations resulted in -$1,000+ returns?
Just watched an old Mstar interview with Bogle. He says he does not believe in factor funds and factors come and go.
Would love an update on the performance of this group of ETFs vs say a basket of SPY, QQQ, XIU. And do you still think it is the best long term allocation. Would you add in say SPGP, COWZ, DSTL or other factor ETFs. Great work!
@Ben Felix looks like Dimensional released multiple ETFs around factor investing since this video was published. Would appreciate an update on model portfolio construction based on those ETFs.
Hello Ben, knowing this information now, and having read your papier on five factor investing, I am a bit unsure now as to my decision of putting all of my money in a one decision fund from Vanguard , such as VEQT. Would you say that, for investors who are keen on maximizing profits through 100% stock index ownership and a long term goal, it is better to manually divide your portfolio with the template you provide ?
Or would the small added costs, slight tax inefficiency and automatic rebalancing , offered in a one decision fund, still be worth getting for the average investor?
Cheers. I Watch your channel religiously as a young Canadian working man. You inspire me to make better decisions and the education I have received here has been invaluable.
This is an old video, but it nicely discusses this important topic.
One issue is that 401 retirement accounts almost never allow ETFs. Even my company's retirement account–which is superb–doesn't allow them. So, I implement a three-factor model, which can be done with mutual funds.
I'm thinking this breakdown for my long term non-retirement portfolio: DISV (25%) – DFSV (25%) – FZROX (50%) … Am I picking up enough factor exposure?
real content starts at 3:35
I think that the reason why last 10 years the size/value factor didn't perform is the rise of the index fund/etf investing itself. These days a lot of people invest in such funds, which means that the majority of new cash being invested each month is spent to pump mega cap growth stocks. It's going to be difficult for small cap value stocks to outperform, when most of the money in the market doesn't even give them any chance.
Wish you made a version of this for different countries. Like I am from Denmark in the European Union and I am not sure we have those ETFs or dont know where to find them.
Dear Ben, In a time of AI and big data, a "5 factor" model seems to me to be kids play. Burning eyebrows trying to manually find best features to explain a certain result is something from the past. In 2020s, ML can simply throw us back automatically what are those features 😏🤔😎😉
Hi Ben, why does your model portfolio not include emerging market small cap value?
Got a Factor food service ad before this lmao
why, for the market risk premium, stocks are benchmarked against bonds and not high-beta stocks against low-beta stocks?
Thank you for making an updated version of the amazing 2019 video ("Small Cap and Value Stocks") that summarizes the relevant theory while introducing the concept of factors. I've been compiling a short list of your videos that I'd share with friends & family that are interested in learning how to invest (and also more generally plan for retirement and manage wealth), and this one is a great summary for the investment portion. And as you have mentioned many times, I'll still end up recommending only something similar to VT, which is sub-optimal, but easier to manage. That is, until we have an equally easy, single-ticket ETF with factor diversification. DFA and Avantis are looking promising.
Either way, understanding about factors (even when not tilting towards them) greatly helps in showing people how trying to pick individual stocks is a losers' game.
Your videos should be considered digital heritage. Thanks for all your work and PWL for supporting it.
All this is soooooo blah blah blah, just buy an index fund and go to the beach, this pursuit for a few percentage points of aplha just isn't worth the hairloss… (No pun intended)
I wonder how many people read the article linked in the bio? Brutal takeaway: I'm too stupid to be trusted with this information…
based ben
it is dense
Thanks Ben for this great video. Somehow this one does not have CC enabled. I teach in Spanish and some of my students will greatly appreciate the CC feature. If you could enable them they will be very happy!! Keep up the great work (and also the podcats!!). Best wishes
Hi Ben, super awesome and detailed videos. I really appreciate the high level of research you are bringing in to investing. That being said, it would be really great if you could break down the main conclusions at the end of every video, and give them in simple terms, or talk about the implications for the average investor in a little more detail (e.g. propose how one could change the weights in their portfolios to incorporate this information).
Hi Ben, my introduction to investing two years ago was to Vanguard's market cap weighted index funds. I really like the way you present yourself and feel like I'm going to need a month to digest this information. I'm planning on printing your paper today and keeping it in the work truck to read on my lunch breaks! Thank you for everything you are sharing!
I appreciate your videos so much!!! Thank you!
Can you do a model portfolio of this for US investors? Thanks!
Hi Ben, what could be the potential replacement of small-cap and value index? We don’t have an access to good small Cap and value index etfs here in Central Asia. We have good growth etfs that covers US, Develoed market as well as emerging market.
Would REITs do the job?
Thanks in advance
hi ben. when you say market capitalization weighted index funds- there are plenty of them. there's the S&P, MSCI ACWI, VT. to which one do you mean? thanks!
I saw in your paper you mentioned that you didnt include large- and mid-cap value etfs to keep the portfolio simple. How would you allocate the portfolio to include large- and mid-cap?
Finance instructors should build their curriculum around Ben's videos
I'm a bit wary of the information in this video. Here is my understanding: If we stick to EMH, aren't market anamolies self-destructive? The decay of excess return is evident. The question remains is how much decay. Five-factor model explains the differences between original CAMP and the actual in a retrospective way; it isn't a guarantee that these factor excess returns will continue into the future.
It would have been good if you had compared the different factor funds too. E.G. Quality vs Momentum.
Hi Ben! Does any other resource of yours mention how to approximate your portfolio using European ETFs? We don’t have access to any of the listed ETFs and replication seems impossible to me.
Thanks for the informative videos!
How did you decide on etf weights in your portfolio? Eventually you only allocate 16% to small cap value. Why not small cap quality/profitability? And why 30% on canadian index?
How does the increased popularity of passive investing into index funds by and the increased number of investors who soley invest into the s&p 500 or tech funds affect the small cap value premium going into the future?
Can small cap value appreciate if investors are mainly taught these days to just blindly keep investing into the s&p 500 and tech (qqq)? Where will capital inflows come in to increase scv value if all the money will consistently keep pouring into s&p 500/ tech by the new generation of passive investors?
Hi Ben, really enjoy your videos, I'm way to heavily country biases and looking to rebalance. So this video is an excellent help in figuring out how to go about it. I read an article from your firm on tax withholding in RRSPs with respect to foreign ETFs. If I'm reading it right it suggests holding ETFs that hold international stocks directly are more tax efficient, so would it make sense to replace an XEC with IEMG for tax purposes in your RRSP?
what should I choose, zprx/ussc or avuv/avdv?
with the Shiller PE ratio as high as it is right now, does the expected return really correspond to the discount rate? Are investors hoping that the companies they invest in have good future earnings, or are they just hoping that someone will buy their over-valued stock?
1:45 Well, we don't live in an efficient market.
The MSCI World Minimum Volatility Index and the MSCI World Quality Index have beaten the MSCI World index with less risk. The reason is because active traders generally pick more volatile stocks because they think they'll outperform.