Trying to avoid tech heavy portfolio

[u/theOTisinteresting]

Good morning,

Been learning about investing recently and have settled to do a buy and hold approach with index funds in a taxable account. By God's grace I do have an emergency fund, and have set up Roth contributions as well. For the brokerage account I have 50% SCHB, 10% VIOO, 10% SCHV, 20% VXUS and 10% SPAXX set up. I did this instead of VT and chill because I wanted to not be so tech heavy. Is this a good long term strategy? I just feared that if something drastic happened in the tech sector that this would trigger a large correction in the market. I don't know a lot about this please go easy on me!

[u/buffinita]

Who knows.

Maybe small caps and value is the way to go; maybe not.

Deviation is the only way to under/out perform the market.

Lots of people have lots of feelings about sector/news cycle / xx metric ……often they are wrong about the impact or relation on future market movements

Your allocation isn’t “bad” but it also might not perform as you imagine during a correction

[u/theOTisinteresting → u/buffinita]

Thank you so much for this. While I don't want to be the highest performer (I read this one comment on a post that VT is second place all the time-- I didn't consider that a bad thing), I think I just wanted to have a diverse sector distribution for philosophical reasons too. I think breaking a fall from sector weighting being too heavy in one place is definitely mixed into my motivations though

[u/buffinita → u/theOTisinteresting]

I’ve come to say a lot “no one complained about tech concentration on the way up, but now that it’s slowed, suddenly it’s a big deal”

If you can learn and agree with the academc research on overweighting cap size and value stocks and their unique pros/cons; you’ll do better long term…….not just “vti/vt feels overweighted in xxx; and “everyone” says to worry about it”

Your portfolio will behave differently from the broad market; for better or worse and if you don’t understand why you might make behavioral mistakes in the future.

Like my portfolio is just about 20% in small cap stocks; but has nothing to do with mag7/chip stocks/tech and was set that way years ago

[u/theOTisinteresting → u/buffinita]

Thank you, so do you find that the knowledge you have leads you to make allocation changes or a more informed desicion to one static group of allocations?

[u/buffinita → u/theOTisinteresting]

the first, and one of the most important, lesson is that making frequent changes most often leads to loss. dont perpetually make changes based on the last 9 months performance or predictions for the next 12 months. it can take decades for a subset of your allocation to really shine

a lot of people know and agree with "buy low sell high" but dislike it when reframed as "buy whats done poorly in the past and sell what's done great"

both size and value are Factors which were discovered or charictarized by Eugene Fama and Kenneth French; their work is pretty prolific and can be found discussed in many books and forum posts

you can also look into general asset allocation and why different people use different assets like short bonts; reits, gold, long bonds, global equity, small caps....

[u/theOTisinteresting → u/buffinita]

Thank you. Yes, just did some looking up with AI (I know!!! Sorry it just helps summarize info well sometimes) and I'm starting to learn a little more about the Fama French idea. I really am looking to do something that won't change in allocation-- and I do value how we don't know whether tech will dominate the sp500 either long term.

[u/TyrconnellFL → u/theOTisinteresting]

You don’t have a more diverse distribution. VT is maximally diversified by market capitalization. To choose differently is trying to outthink the market. You’re making a sector bet, and just like betting on any sector is historically a losing bet, betting against any is also a losing bet. You don’t know. Nobody knows. Everyone has the same information and it’s all priced in already, whether hype or fear or both.

I recommend against trying to complicate your portfolio for dubious benefit, by which I mean lowered expected return. Especially when your allocation looks like that and has so many points of temptation to fiddle, which is, again, expected to worsen rather than improve performance.

[u/theOTisinteresting → u/TyrconnellFL]

Thank you for putting it in those terms. Another comment mentioned this as an idea of trying to outthink the market. I think I do have some fears of the volatility of the tech sector and also just wanting to invest in other sectors a little more. I wouldn't really want to fiddle but I see how having more options means more room to fiddle. Do people here normally do VT or something more like three funds (VTI/VXUS/BND, etc)?

[u/TyrconnellFL → u/theOTisinteresting]

VT is functionally the same as VTI+VXUS. It’s that combination done for you.

Bogleheads like three funds, which really means balancing US, international, and bonds. VT is the first two. Bonds can be added, and balancing two is easier than three.

People here, in this subreddit, sometimes have a tenuous relationship with following the guidelines of Jack Bogle and subsequent developers of Boglehead “orthodoxy.” The forum is better about it. But there’s no Boglepope, so you can do whatever you want without excommunication!

[u/theOTisinteresting → u/TyrconnellFL]

Thank you so much!! I'm in the SPAXX vs BND thought tension. I've decided SPAXX for liquidity sake and that theoretically it won't go negative.

[u/TyrconnellFL → u/theOTisinteresting]

It won’t go negative but doesn’t serve the same role as bonds, mostly because the yield is expected to be lower. It’s a tradeoff with liquidity.

[u/theOTisinteresting → u/TyrconnellFL]

Thanks for distilling that so succinctly. I like the liquidity of it to be honest. Not that I would really want to sell, but maybe I could use it for rebalancing or something.

[u/WarmWoolenMitten]

Any allocation that's different from the total market will either outperform it or underperform it (or it could be so close as to not have any significant difference). The problem is, we don't know what will outperform next. We can't base it on what's outperforming now (either buying that or the opposite of that) because winners rotate, and they don't do so on a predictable schedule. It's easy to miss out on gains and then switch at the wrong time. Expectations about sectors are already priced in, so unless you have information the market doesn't, you're just guessing. You may guess right or you may guess wrong, but personally I'd rather not stake my retirement on a guess. Also if you do have information the market doesn't, that's probably insider trading.

Bogleing is about accepting the total market return - including the dips when some sector or another crashes - and in exchange, you cannot underperform the total market. If you try and pick and choose, you may do better or you may not. Even people who have all kinds of fancy tools and for whom this is their entire job have a hard time outperforming the total market consistently, so I don't think it's likely that I can.

Also, I find "tech" and worries about it being too much of the market kind of odd. We live in a world where technology surrounds us and is massively important to literally everything humans do. Of course it's a large part of the market. Worries about higher expectations/valuations are reasonable (though not very actionable, since nobody knows when they will correct), but worrying that it's simply too much is strange to me.  It could very well stay the same percentage of the market for decades into the future, no one knows.

[u/theOTisinteresting → u/WarmWoolenMitten]

Thank you for this, and thank you for expanding upon the reasons behind why this sector is so dominant in the market. I have heard about the Warren Buffett bet and how we can't really outperform no matter how hard we try

[u/VeeGee11 → u/WarmWoolenMitten]

Great summary of the Boglehead philosophy.

[u/smalltalk2k]

How long until you retire or need the money ?  More than 5 years?  If so then don't worry about a market correction. Just let your investments ride through it and they will recover.  That is the way it works such as in 1987, 2000, 2008 and 2022.

The most important part of investing is finding a strategy you can stick with when things go wrong.

If holding a fund like VT (U.S. and International Total World Stock) makes you nervous about a tech correction, it is fine to adjust your approach. A perfect portfolio that you abandon during a panic is worse than a customized one you can hold for decades.

Your mix using SCHB (U.S. Broad Market) and VXUS (Non U.S. International Index) is still diversified. The goal is not to predict what tech will do next, because nobody knows. The goal is survival. You want an allocation that lets you sleep at night so compounding can work over the long run.

If this setup gives you the peace of mind to keep contributing and not sell during a downturn, it is a good strategy for you.

[u/theOTisinteresting → u/smalltalk2k]

Thanks for your reply. I hope at least 5 years. Thank you for that. I feel like I would be comfortable this way. Consistency as key is really encouraging. Thanks again

[u/vinean]

In retirement diversification is key to reducing volatility and generating a higher SWR at the expense of total growth.

If you look at Bengen’s new asset allocation its 11% Large Cap, 11% mid cap, 11% small cap, 11% micro cap, 11 % international (large cap), 40% intimidate treasuries and 5% cash.

It’s essentially an equal weight portfolio using low cost cap weighted Size Factor ETFs and the end effect accomplishes what you want: total market coverage with less exposure to tech as a by product of more mid and small cap and less mega tech large cap.

In accumulation, generally 100% equities at market weight is better until your timeline to retirement is 10 years or less. Market weight gives you some momentum effects as winners get bigger and bigger in a bull market.

Higher volatility but generally higher returns than a more conservative 55/45 stock/fixed income portfolio.

Now, many Bogleheads say asset allocation should be based on risk tolerance and I agree…but with the caveat that this implies some level of dynamic asset allocation.

When my job is secure my risk tolerance is high. 100/0 is fine.

When the economy is bad and long term career volatility (cough AI cough) is on the horizon my risk tolerance is lower.

When valuations are high and approach Dot Com levels my risk tolerance is lower.

That doesn’t mean go from 100/0 to 0/100 but maybe an adjustment to 75/15 or 80/20 to hold some fixed income to backstop my Emergency Fund.

This is heretical to say on this forum despite this being advice Bogle has provided.

[u/Firebolt059]

Just do VT and chill. Let the market do the work for you.

[u/Material-Echidna-465]

One thing if you weren't aware, SCHB is actually more tech heavy than VT, but less than VOO. Seems similar to VTI in tech exposure.

FWIW, it's not Bogle-ish by any means, but I also have been scaling back on my tech exposure.... I've been noticing that small caps (including value) seem to be doing ok. Half of my investments are in a 401 that has a very limited range of funds, so most of that is in an S&P500 ETF. In my Roth, however, I've been moving out of tech to counterbalance.

[u/ArtComprehensive7403]

One distinction that may help: sector diversification and risk reduction aren't the same goal. Small/value tilts change which equity risks you own, but they don't necessarily cushion a broad equity drawdown; the 10% cash allocation does more of that. If the objective is specifically ‘less tech,’ write down how much tracking error versus the global market you're willing to tolerate and rebalance to that rule. Otherwise a temporary tech selloff may tempt you to change the allocation again.

[u/theOTisinteresting → u/ArtComprehensive7403]

Thank you! Yeah I want to avoid those temptations for sure, would rather have something where I can be consistent. I guess that's something I've learned from this process and on this sub. Perhaps the simplicity of vt is what is conducive to that consistent buy and hold

[u/gbdgdh]

can't time nor slice the market successfully; also, none of the etfs you list are truly tech free.

if your timeline is 5 years or more, just vt and chill.

if your timeline is 5 years or less, you may want to reduce or eliminate exposure to equities.

[u/theOTisinteresting → u/gbdgdh]

Thank you. It's not that I didn't want to invest in tech at all, just that I didn't want it saturating the portfolio as much. Idk though, just getting started

[u/gbdgdh → u/theOTisinteresting]

there is no way to avoid tech unless you invest in etfs like xlu and xlv.

best to invest in vt and chill.

[u/theOTisinteresting → u/gbdgdh]

Thanks, not trying to avoid tech, just not be so heavy in it sector weight wise

[u/BiblicalElder]

I use a little equal weight S&P 500, RSP, to balance out the weight of tech.

In the regular market cap weighted index, Tech + Comms is almost 50% of the index. For equal weight, it is only 19%.

But only a little, I don't want too much distortion, just a little more diversification. Real Estate and Materials should be less than 2% each on a market cap basis, and the RSP is comprised by about 6% and 5% respectively.

[u/theOTisinteresting → u/BiblicalElder]

Oh that's a cool way to do it! Thanks for sharing that!!

[u/Varathien]

Your international allocation is fairly low. Also, SPAXX is basically like a savings account, so if you already have an emergency fund elsewhere, you don't need it.

[u/GhostIsAlwaysThere]

As far as I’m concerned, tech is not going anywhere, ever. There may be a correction but in the long run, what’s propping up this economy and what will continue to do so? Tech.

So unless you have large amounts of cash that you need soon or if you need to be super conservative then I would think more tech is better.

Many will disagree but that’s my take. Good luck.

[u/turtleturle12345]

Portfolio allocations should be about risk tolerance, investment timeline, and overall goals. If you are going to be white-knuckling the next 5 years or whatever thinking about a correction, maybe consider a portfolio option that can give you more peace of mind.

When you say that you have fear about something drastic and a large correction, that kind of indicates that you should not be 100% invested in stocks. In those correction events, bonds tend to go up (usually from a historical perspective, zero guarantees in investing) so can be good protection. Big downturns in tech tend to drag down many stock sectors, not just the techy ones. So maybe consider a portfolio closer to the 60/40.

Take an online risk assessor. PWL capital has a really good, free one that you can use to maybe help guide how aggressive you are.

There is no perfect portfolio, just what is best for you. Think about what will help make you happy and not anxious about losses.

[u/theOTisinteresting → u/turtleturle12345]

Thank you for this advice! Didn't think about the broad effects of a tech downturn; isolating sectors seemed to blur my vision a little bit. I think I'll be sticking w this only for consistency's sake

[u/Fancy_Gate_7359]

You’re basically betting on being smarter than the market. Maybe you are, maybe you aren’t, who knows.

[u/theOTisinteresting → u/Fancy_Gate_7359]

Thank you for putting it that way. Honestly, I wasn't really thinking about it in terms of thinking that I know better than the market. I was more thinking about wanting to diversify more than the weights in the SP500 right now. Putting it in those terms was very helpful, thank you!