Factor/Diversification Tilts? Or all VOO
This is for all my people who invest primarily in ETFs:
Whatâs your argument for maintaining allocations to ETFs like AVUV or VXUS when VOO / U.S. large-cap has continued to outperform?
I understand the traditional argument for diversification: small-cap value has historically offered a risk premium, international stocks diversify away from the U.S., and different asset classes/factors can outperform during different market regimes.
But at what point does diversification become over-diversification or simply holding onto historically supported theories that arenât currently working?
VOO gives you exposure to some of the strongest and most profitable companies in the world, and U.S. large-cap has dominated international equities and many factor strategies for a long period of time. If the companies driving the S&P 500 continue to grow earnings, innovate, and capture an increasing share of the global economy, why dilute that exposure?
On the other hand, is that exactly when you shouldnât abandon diversification?
For those holding AVUV, VXUS, or other factor/diversification ETFs alongside VOO:
* Are you holding them because you genuinely expect them to outperform VOO over the long run?
* Or is the primary argument that they protect you if U.S. large-cap eventually underperforms?
* How much of your portfolio are you willing to allocate to an underperforming factor before you admit the thesis isnât working?
* Do you think current U.S. large-cap valuations justify diversifying elsewhere?
* And most importantly: if you were starting your portfolio from scratch today with a 20+ year horizon, would you still choose VOO + AVUV + VXUS, or would you simply go 100% VOO?
Iâm especially interested in arguments against VOO-only. Iâm not looking for âdiversification is goodâ as a blanket answer â Iâd like to hear the actual thesis for why these additional exposures are worth sacrificing some VOO exposure for.
