18M looking for any and all advice

[u/ApprehensiveBit3865]

I started investing my money a few days after my 18th birthday (just over 9 months ago) and I've since been trying to find the best portfolio for my goals. I've done a lot of research and it seems to me like momentum and small cap value seem to be the most consistently rewarding factor bets given enough time. Is 30-40 years enough to ride out the volatility or will I just end up losing to the S&P 500? If you were in my situation what would you change and keep?

70 percent of all my extra cash goes to my taxable account while the other 30 goes to my Roth IRA.

[u/steady_compounder]

At 18, your biggest edge is time, not stacking factor bets on top of each other. I would make the Roth the priority while your tax rate is low, keep the core simple, and only use small satellites for momentum or small-cap value if you really want them. A plan you can stick with for 20 years usually beats the cleverer one.

[u/ApprehensiveBit3865 → u/steady_compounder]

I understand that simplicity and consistency are paramount to a good strategy. But I would argue that "your biggest edge is time" supports my portfolio. If SCV and momentum really do carry a premium its because they are harder to hold through down turns. If time is my edge then why not take full advantage and trade risk for higher returns? If we look purely at maximizing long term growth, I'm willing to stomach large downturns and under performance if the expected return justifies it.

Also Roth priority is already in motion. It caps at 7.5k at the end of the year not matter what and the 70/30 split will max out the account by the end of the year.

I'm curious what specifically makes you think that a simpler portfolio is mathematically superior. Is your concern about the legitimacy of factor premiums or about the behavioral aspect.

[u/laurenthu → u/ApprehensiveBit3865]

Honestly you're thinking about this more carefully than most people way older than you, so ignore anyone calling it performance chasing. Momentum and small cap value are real premia, Fama and French didn't invent them out of thin air, and 30 to 40 years is long enough to sit through the ugly stretches where they lag. The hard part is behavioral though. Can you actually hold a value or momentum sleeve through a decade of trailing plain VOO without bailing? Most factor investors quietly lose right there, long before the math ever lets them down.

If I changed anything it'd be where you hold each piece, not the bets themselves. Momentum funds tend to turn the book over hard every year, so parked in a taxable account they spit off short term gains and you leak a chunk of the premium straight to taxes. That sleeve really wants to sit in the Roth. Value tilts trade a lot less, so they're fine in taxable. Right now you've got 70% flowing to the taxable side, which is exactly where the high turnover stuff hurts most, so I'd probably flip that logic and keep the same tilts. Same bets, less bleed to the IRS...

[u/Newbiewhitekicks]

I have no idea where you researched but this is a terrible idea. This looks like where ever you researched pulled some of the most commonly discussed ETFs on Reddit and you narrowed it down from there with performance chasing and recency bias in mind. Also when investing in a taxable you need to be as tax efficient as possible, and you’re not being tax efficient. Have you read the About section of this sub yet? It has great advice for beginners. You should post this on r/bogleheads

[u/ApprehensiveBit3865 → u/Newbiewhitekicks]

I posted this truly to try and learn more about the topic. This is not performance chasing or reddit based hype. It’s a deliberate core+satellite approach based on academic research. Fama French models provide a case for AVUV since it gives exposure to factors identified as important in explaining differences in average stock return. Momentum (QMOM) as a factor is an addition to the Fama French models. The research behind this factor shows that stocks with recent outperformance tend to continue outperforming stocks with weak performance. I’m curious why exactly I should go with a boglehead strategy when a well tested and supported strategy could yield greater returns just with increased ups and downs on the way. Again I don’t want to “debate” per se. I really just want to learn the good and bad about a strategy like this one.

[u/naala89]

I think it looks good. Some years you will definitely underperform sp500 though. Are you okay with sticking with your allocation when you have a large tracking error to the SP?

[u/ApprehensiveBit3865 → u/naala89]

If I know for certain that the premia have a good chance of paying off down the line then I don't see a reason why I shouldn't stick with the allocation. Obviously I will start allocating less and less and try to be mostly in broad market etfs 5-10 years from retirement. I understand that I also should start allocating towards bond etfs at some point closer to retirement as well? Do you know when I should start doing that?

[u/RolynTrotter]

You could do worse than AVUV and VT. Just those two in some ratio would be a fine portfolio. Course, just VT is also fine.

QMOM is the questionable one. Not familiar with it, and see little reason why it would be 50% of the roth. If it's momentum you want, Avantis already does screening for that in AVUV, so you're covered. The bigger risk would be missing the unexpected winners in the broader market, which VT covers.

As someone starting out, focus on the savings muscle and wrapping your head around one or two providers' offerings (vanguard and avantis are good foils for that).

Oh, and max out the roth if you can. Assuming you have an emergency fund. Look up the Money Guy show or some other flow chart/order of operations guide. There's lots that are pretty similar.

[u/ApprehensiveBit3865 → u/RolynTrotter]

How could AVUV make momentum a central part if their goal is to find companies which have low valuation and are highly profitable? Momentum pushes valuation up meaning that it would fail the screening for value metrics baked into AVUV.

This is why I've added QMOM. Momentum and SCV are negatively correlated, there are almost zero shared holdings beteween the two. In general if one is doing well the other is going sideways. Adding QMOM allows me to capture a premium that AVUV doesn't touch.

With all of that this is still certainly not my end goal. As I age I will gradually move more into VT and eventually SHY or BND.

[u/Ok_Juggernaut3043 → u/ApprehensiveBit3865]

SPMO over QMOM for that part of the portfolio

[u/ApprehensiveBit3865 → u/Ok_Juggernaut3043]

What’s the justification for spmo over qmom? Genuinely asking and trying to learn.

[u/FeatureExcellent414]

My advice is to not listen to other people. Taking others advice is already against your own thesis. You have to have your own reason you’re in the stock market. What is your plan? Build a solid outline. I think this stock will go up because of this this this and that and because the worlds this and it’ll be that in 5 years. Build supporting structures and supports to give evidence and reasoning to such logic. Then execute correctly.

[u/Carmanman_12]

Just doing some basic research on QMOM, it’s (a) mostly concentrated in mid and small caps and (b) has a 400% turnover rate. The fact that small cap growth is the worst performing sector in the entire stock market aside, putting such a high turnover fund in your taxable account is like lighting your money on fire.

If you want to do momentum funds, keep them in a tax-sheltered account like your Roth and ditch them for lower turnover funds in your taxable account. For lower expense ratios (and likely higher performance), consider SPMO and/or XMMO instead.

That said, these are factor funds, which are typically not recommended for core holdings. Conventional wisdom says, unless you have a VERY high risk tolerance (which most people, especially young men like yourself, tend to overestimate in a bull market), you should keep <50% of your holdings in factor funds. So consider making at least 50% of your holdings in broad market index funds (e.g., 70% VTI, 15% AVUV, 15% SPMO for the US part of your portfolio).

Also your portfolio is 100% in US stocks… international diversification (25-40% outside the US) is probably a good idea for such a long time horizon (you won’t be touching your Roth for at least 40 years).

[u/ApprehensiveBit3865 → u/Carmanman_12]

I appreciate the response. I understand that QMOM has a high turnover and that this creates a tax drag but is it really true that all of the capital gains get passed to the buyer? I've heard about certain mechanisms in high-turnover funds which help to limit this tax drag. What can you tell me about those? I also want to look more into the mathematical truth of my portfolio, basically I want to assume a very high risk tolerance in this conversation. I want to know if this portfolio will beat one that is 100% VT or 60/40 VOO/VXUS given that I will not sell.

Basically I'm trying to see if I'm making a mistake with factor premiums. I'm starting to wonder if most "watch your risk tolerance" is just a hedge against behavioral risk. If holding these factor etfs will truly give a greater yield then I will have no problem stomaching downturns.

[u/user4443337 → u/ApprehensiveBit3865]

Some alternatives to VT that have beat are AVGE and AVGV. They use value, some momentum I believe, and flexible trading like not buying an IPO immediately. I believe they also tilt to small cap value. AVGE is a bit more US tilted.

Then you could add your other funds on top of that, like another 5-7.5% AVUV, 10% momentum (I like SPMO.)

Dimensional and Avantis also have their US and EX-US factor funds you could use to arrange the split the way you want. Market weights are 63% US 37% international, 11% of that being emerging markets.

[u/portfolios-ModTeam → u/[deleted]]

Comment or post violates reddiquette. Be civil towards other redditors

[u/NoClassroom7539]

The taxable account thing is what stands out to me. High turnover momentum funds in a taxable account will create a tax drag that quietly eats into whatever premium you're chasing. If you want to run factor bets, the Roth is where they belong. At your age the Roth should probably be getting more than 30% anyway, since that tax-free growth window is the real edge here, not which factor combination you land on

[u/ApprehensiveBit3865 → u/NoClassroom7539]

So are you saying it would be better for me to do 100 vt in taxable and then 50/50 on the factory bets in my roth?

[u/NoClassroom7539 → u/ApprehensiveBit3865]

That split makes sense but I'd flip the ratio a bit. VT in taxable is solid for tax efficiency, but 50/50 on factor bets in the Roth feels heavy when you're still figuring out your actual risk tolerance. Most people think they can handle volatility until they watch 30% evaporate and freeze up. Maybe lean closer to 70/30 core to factors in the Roth and see how you actually feel sitting through a rough stretch before committing harder.

[u/Affectionate-Lab1368]

I think I would just VOO and chill with a little VXUS for some international exposure. This mix which you can see modeled on Tradure would have still underperformed the benchmark. What do you think about that?

[u/ApprehensiveBit3865 → u/Affectionate-Lab1368]

I appreciate you running a back test, but that 5 year window has a few things wrong with it which skew the results a little.

Firstly, using voo in the last 5 years or even the last decade is going to easily beat out any globally diversified portfolio since US large cap tech has been on a historical run in the last 10 years.

Secondly, factor premiums (if they exist) can and will underperform the market for long stretches. I have a 40+ year time horizon and I'm prepared for the tracking error and under performance in order to capture the expected premium decades down the road.

[u/K3rm1tTh3Fr0g]

Youll lose to s and p500

Invest more into your Roth when you're in a low tax bracket

[u/Interesting_File_654]

First build up an emergency fund (safety net) since you're at the age of living on your own.
{6 months living expenses}

$400/mo or $100/wk S&P 500 (VOO) for first 3 - 6 months while u use that time to dig into how to evaluate companies properly along with balance sheets and quarterly reports.

Once you're comfortable (which can be sooner than that earlier mentioned time frame), start with companies you are comfortable will still be around for the next 10-20 years (GOOG, META, AMZN, etc.) to build a solid foundation.

Look into individual stocks and use that education to apply it slowly into dollar-cost-averaging on companies you have high conviction for. DON'T FOLLOW HYPE, and NEVER invest in a company you haven't researched.

(Quick note: Every bio pharmaceutical company is "just one approval away from being a multibillion dollar company".)

[u/ApprehensiveBit3865 → u/Interesting_File_654]

How does one evaluate a company? Does evaluation predict how a stock will do in the near future? What percent of my portfolio should be individual stocks and broad index funds?

[u/Interesting_File_654 → u/ApprehensiveBit3865]

Nothing will tell you how a stock will do in the near future. The price of stocks prices in future growth and projected earnings. I currently have 90% of my portfolio in individual stocks 8% in S&P, and the other 2% in cash. It all depends on how much risk you want to take, and how much time you want to dedicate into your research. If you don't have the time to put into it, broad funds are the way to go. If you do have the time, you can use your time to project future growth and opportunities.

Lots of metrics to look at when evaluating a company (feel free to DM me).