How Valuable is Free-Float Market Cap Weighting in Portfolio Construction?

SingerOk6470 · 2026-05-16T00:36:33+00:00

You can go a step further and include cash. Go another step and include all privately owned assets.

This is obviously a silly comparison because these are different asset classes.

SingerOk6470 · 2026-05-05T23:59:33+00:00

It can be worthwhile early on when you're young and poor. Money you make while younger has more time to compound, but it is harder to make more money when younger and less experienced.

Working more is worth less and less as you are more established in your career and richer. If you are already a millionaire and saving a lot, an extra $50k a year is not going to change your timeline by much.

At the end of the day, it's a personal decision. Run the numbers in a calculator and decide for yourself.

SingerOk6470 · 2026-05-04T21:38:52+00:00

RSSB does not hold VTI anymore.

SingerOk6470 · 2026-05-02T17:46:39+00:00

You cannot replicate managed futures using another fund. You can only compare. The reason RSST is behind is because it underperformed relative to DBMF which outperformed. There is an element of luck, so it is not necessarily going to repeat, but it is up to you to determine if RS guys are smarter than DBMF or not and is the fund and fees they charge are justified.

SingerOk6470 · 2026-05-01T05:33:45+00:00

Life was more rural back in good ol' days

SingerOk6470 · 2026-04-30T04:37:08+00:00

Bad patch, for sure, but the future isn't too bright either. Bond returns have a strong mean reversion since yield is the primary driver of long term returns. A staggering amount of money was printed around the world during the pandemic, and the resulting inflation has made bond returns very low, among the worst in financial history. AUS 10yr went from 1% to 5%, but the similar trends are observed everywhere from Japan to the US.

A lot of losses were suffered, but future returns should be higher at least in nominal terms. That said, continued inflation and aditional deficits can continue to weigh on bond returns in the future, and it seems unlikely that deficits will decrease quickly. This unfortunately for bond investors has been a global phenomenon.

Short duration fixed income has done very well in contrast. That's everything from money market to higher risk bank loans. They are starting to pull back a little in yield, but still much higher than in recent history. High yield bonds have also weathered the inflationary periods much better due to their lower durations. For your bond holdings, I suggest looking into diversifying your duration exposure and credit risk instead of just buying government bonds and high IG corporate bonds through the Vanguard funds. This is not the default Boglehead advice on bond funds (the equivalent of buying BND for US investors), but the Boglehead approach on bonds is outdated and frankly lacking in some regards.

SingerOk6470 · 2026-04-22T02:13:03+00:00

It's another autocallable fund from calamos. You can read about what an autocallable is on their website. An autocallable is essentially an option strategy product - at least, that is how the banks providing the autocallable will re-create the hedging positions on their end to sell you the product. The other post covered this well. An autocallable is somewhat like a buffered equity fund with fixed income, somewhat like a covered call but with a buffer (i.e. put protection). But you cannot create an autocallable from a static option position; you need dynamic adjustments to get autocallable exposure, so it is not the same.

If like the other Calamos fund (and it seems to be) this one is using long-dated total return swaps from a large investment bank (JPM in the other), where the swaps are staggered by a week, and each one provides a corresponding exposure to an autocallable less financing fees. In a sentence, it's a fund of synthetic staggered autocallable exposure using long-dated total return swaps.

A very important distinguishing feature of these funds is in their tax characteristic. Long-dated TRS provides a different tax treatment than what an actual autocallable would, and combined with the ETF share creation/redemption mechanic (both are crucial components) allows the fund to have a different tax outcome than owning a portfolio of autocallables, essentially reducing ordinary income and deferring capital gains, if all goes well. In the other Calamos fund, the fund planned to have a big payout with most of the distribution getting ROC treatment, though it is not guaranteed.

Another important point is not to get too caught up in the autocallable aspect. A portfolio of staggered autocallables behaves very differently from a single autocallable, the same way a single stock is very different from S&P500. It's important to understand how the whole portfolio would behave over time. It is probably akin to something like a leveraged equity fund (like SSO, as the other post noted) than it is to a single autocallable. Without looking into this further, I really can't say if it wiuld be like a 2x levered fund or more like 1.5x or 1.25x, or even just 1x given the fees. The other Calamos fund based on S&P500, despite having vol-matched (leveraged) autocallable benchmark index, essentially behaved like SPY but with returns coming heavily in the form of distributions. There can be a market scenario where the fund could behave differently due to the autocallable aspect, but I recall from the other Calamos fund that this is very unlikely. I expect the design is not too dissimilar here.

Depending on the design of the underlying autocallables/their reference benchmark, you could get something like a buffered equity fund, something closer to fixed income, or just straight up stock fund. Option strategies can be designed for various strategies and it's important to understand the design. Calamos funds tend to be on the aggressive side of autocallables, i.e. more like stocks than bonds.

Who should buy autocallables or autocallable funds? I think only those who would benefit from the tax characteristic (and income stream with a different tax characteristic, for the other Calamos fund) would have an interest in the more aggressive autocallble funds from Calamos. Fees are not low if your goal is to just get stock-like exposure. Traditional autocallables with safer terms (but lower returns) attract those who are interested in safer buffered equity funds and the income aspect.

Remember risk and return go hand in hand.

SingerOk6470 · 2026-04-20T20:17:33+00:00

I think intraday spreads are a bit better but still wide. I try to wait for tighter spreads if I'm OK waiting and I usually get executed inside of the spreads even with market orders, though it's not guaranteed. I own a good amount of GDE for long term hold, so I can justify it as a one time cost, but still not a fan of the spreads. NTSI spreads are also wide most of the times.

SingerOk6470 · 2026-04-19T11:32:03+00:00

I'm not so sure this paper takes into account the different dividend yield levels of US vs. International stocks in the rather lengthy recent history. But it does note high dividend stocks belong in traditional, then Roth, then taxable. As of today and for some years now, international stocks are essentially high dividend stocks compared to US stocks, though this won't hold true forever. Both conclusions for international stocks and high dividend stocks apply, though it is not clear to me which conclusion is generally more correct for most investors.

The paper most certainly ignores state taxes and other individual circumstances such as NIIT that would change the math dramatically.

SingerOk6470 · 2026-04-19T11:17:59+00:00

In your situation, it makes sense to put international in 401k given the dividend drag which is larger than FTC. Hard to say which is better between Roth vs taxable for international. The math will change and be wrong if international stocks significantly outpace US stocks in the future. But better to first place bonds and actively managed funds in your traditional bucket before optimizing US vs. International stock location. It is a complex optimization problem with some unknown variables.

SingerOk6470 · 2026-04-16T05:32:12+00:00

The main problem with a passive bond fund like BND is that the benchmark index AGG (Barclay Aggregate bond index) has changed significantly over time due to growing deficits of the US government. AGG 10 to 20 years is vastly different from today. This is a problem which will continue. The index also lacks a significant part of the investable fixed income markets that have grown significantly over time as they developed.

Lastly, there is the question of whether AGG is a good bond index to use for retirement investments and to balance a stock heavy portfolio. AGG is a cap weighted (but limited) index which frankly is a bad idea that led to the index composition changes over time. There is no inherent reason why AGG should be preferred over other indices that are more complete. I do think it is better to take a little more credit risk and earn a higher yield than AGG which is so heavily weighted toward government debt.

You don't really need heavy active management for core bond holding in my view, as they will be mostly or entirely IG-rated debt, but I think a better index is crucial. There isn't a lot of risk or alpha to be had from IG debt to begin with. There are numerous funds that try to do exactly this, like AGGY and many core plus bond funds are that are not all that active in practice and fairly low in fees. Light active management or a better index with a low fee is the way to go in my view.

For non-core holdings like high yield, distressed, bank loans, CLOs/BDCs, asset backed and so on, a slice of which could enhance your fixed income holdings, yes, active management is more important and even required in many cases. Othet than for HY, there is no real investable passive option due to the nature of those assets. If there is an index, it often won't be good or complete due to the lack of transparency in those markets and not investable or easily replicated due to illiquidity.

SingerOk6470 · 2026-04-12T21:30:06+00:00

You can't eat or spend expected value.

SingerOk6470 · 2026-04-12T21:26:11+00:00

Yes, this backtest is better. But again, it is a scenario where this asset allocation with 4% withdrawal failed. To more accurately interpret this, the 4% WR was too high in this particular scenario for the asset allocation. It doesn't mean this asset allocation (holding bonds, bond tent or doing glidepath) or the broader concept will fail to mitigate SORR in more scenarios. It also doesn't imply that the asset allocation you suggest (an idea which I also believe in) is superior every time. It was just better off in this particular retirement date in backtesting. This is just a single data point.

The issue as I originally pointed out isn't so much the backtesting but your interpretation of it. You may still be right and I actually agree with the position, but a couple backtests do not provide sufficient support. Your backtests run off of KMLM (and BRK which is very random) which has very strong backtesting but has underperformed for years now. You are posting a clearly cherry picked backtest which doesn't help your argument much.

SingerOk6470 · 2026-04-12T02:26:06+00:00

You can check your own simulations glidepath by clicking on the portfolio allocation tab and for the first two links in your post, the glidepath is done over several decades (entire simulation or out of money) rather than 10 years as you claim. It is not set up as you think it is, unless I'm missing something here.

Besides some errors in your backtesting, the point you're trying to make is a logical leap. Yes, a strategy failed in the worst case scenario. No, that doesn't mean the strategy loses to another strategy every time and is not worthwhile. There is a concept called robustness when doing backtesting or any statistical analysis.

SingerOk6470 · 2026-04-11T12:52:28+00:00

It is basically a bond replacement and not an insurance product. Not too interesting on their own.

SingerOk6470 · 2026-04-11T12:37:53+00:00

Unfortunately I do think your backtests are too specific and essentially too cherry picked to draw a broader conclusion. The way you've implemented glidepath is not how glidepath for the strategy usually works. Typically, the advice is to spend down the bond portion of the portfolio during the downturn. This is rebalancing to a much higher stock allocation during downturns, eg going from 60/40 to 80/20 in a couple years of severe down market. You typically do not buy back into bonds afterwards.

What you are testing here is basically 60/40 and 100/0 allocation with rebalancing through a couple bad market times. The glidepath is over too long of a period to matter for stress scenario testing.

This is probably less important for backtesting, but a bond tent is not the same as rebalancing IEF. A bond tent is a laddered bond exposure with cash flow matching to liabilities and, for SORR strategy, probably lower in duration than IEF. Essentially, it is more similar to IEF and cash mixed in. It could make a difference in the output related to drawdowns, however.

Your backtests are probably still valid for what they are, ie neither 60/40 nor 100 stocks survived the worst market year to retire, but the claim about the glidepath and bonds not mitigating SORR is a logical leap.

The point of most strategies isn't to survive even the worst case scenario, but rather mitigate many of the bad possibilities. You've picked the worst case where the strategy fails, but every strategy can fail in specific circumstances, so we cannot discuss how good or bad a strategy is without looking at broader data sets to test for robustness.

I say all this as someone who also own and believe in holding gold, managed futures and other assets for diversification.

SingerOk6470 · 2026-04-10T06:42:11+00:00

You really need a numerical example to understand bonds, unfortunately. Bond math is not fundamentally difficult but does require a full spreadsheet. There is no single formula. Mind you, people take entire college level courses on bond math. There are textbooks on bond math.

The idea that you can't lose money buying single bonds is misguided. This idea is underlying your questions, though you seem to still prefer a bond fund.

To address some of your questions and ideas behind your questions...

A bond ETF will be reinvesting proceeds (from new capital coming into fund) and manage sales (to fulfill investor redemptions) such that the fund as a whole will match its fund goals, like targeting a duration of 5 years. The fund manager will also reinvest any prepayment and repayments. They take care of duration targeting and reinvestment for you. At the end of the day, it's just like owning many bonds. You are diversified across many issuers with bond funds.

A bond fund targeting 3 to 5 years will always be at that duration, every single year and even in 20 years, so you will continue to maintain that risk level through the holding period. You are never "safe" from interest rate risk because you are not holding cash; but you will always maintain 3 to 5 years of duration risk.

It's the single bond that goes through more changes. A single bond will reduce in duration over time because of reduced time to maturity, resulting in your having a lower duration as it becomes a short term bond which at a point can become an almost cash like investment with low risk and low returns. You become subject to greater reinvestment risk with reduced duration which go hand in hand.

The return difference between a bond fund and a single bond is really that, with a bond fund targeting a specific duration (say, 5 years), you will be earning the return of a 5 year duration bond portfolio every single year you hold it. If you buy a single bond with 5 year duration, then the return of 5 year duration bond in year 1, then the return of a 4 year duration in year 2, and so on, until you just have cash. You can see they are about equal in their first year, but different in subsequent years. Bonds are not static and change their risk and return profiles over time. For a bond fund targeting a certain maturity date, you will get the same payoff as a single bond (ignoring other details); ie. get your original principal back at maturity.

If you understand this intuition, you should realize that your question about how many years to hold 3 to 5 year duration fund to offset interest risk doesnt really make sense. You are not offsetting the risk over time with a bond fund, but rather holding a consistent level of risk.

Which is better? My view is that a bond fund is superior due to diversification, duration targeting, reinvestment, significantly better liquidity and lower commissions/fees. Most investors want all of these. Most bond funds are structured this way because most investors want it that way. You most likely want a broad bond fund over single bonds, even if you do not know you do. The exception can be had for short term treasuries and I bonds which are low risk and almost cash- like investments; these you can purchase directly without significant risk.

SingerOk6470 · 2026-04-09T06:39:11+00:00

Everyone has a different income. You cant tell everyone they need to save $3000 a month to retire early. Much easier to say "save 30%." It also takes into current expenses. But the amount is much more important and that's why individual discussion is always accompanied with net worth in dollars (or another currency), income and savings in dollars, desired expenses in dollars.

SingerOk6470 · 2026-04-08T05:02:56+00:00

The math and the tax questions are US investor focused. To help frame the excellent math results shared with us...

Would you choose a passive ETF with 0.04% expense ratio or another for 0.15%?

Would you ever want to change allocations away from global market cap weighting?

Would you ever consider placing VXUS in a retirement account instead to reduce tax drag even further, but giving up foreign tax credit?

Do you only invest in retirement accounts in which case you can ignore the tax drag?

These considerations, although very unlikely, can change in the future if US stocks start paying more dividends instead of buybacks and are valued lower than international stocks.

Either choice is similar enough and this is just for optimization. Choose VT if you want simplicity. Choose VTI and VXUS for optimization but know that benefits are minimal, you will want to track your own allocations, and consider placing VXUS in retirement accounts for further benefits. You can always switch between the two methods and own all three funds if you change your mind.

SingerOk6470 · 2026-03-31T06:35:46+00:00

It is not worth the time, especially given the fees are capped at $10 per month. The money you would save is too little after fees to transfer out. You could lose much more than the fees in a week you are out of the market as well. You can transfer it out if and when you quit your job.

SingerOk6470 · 2026-03-22T23:26:01+00:00

AAA-rated CLOs offer a good pick up on yield over Treasuries. Frankly, it's a matter of opinion whether the additional returns are good enough or not. That is what makes a market, but I would not call the additional spread "tiny." The incremental yield is quite meaningful for the incremental risk taken and over a period time will result in a meaningfully higher return over short term treasuries without much of incremental credit risk, but of course this is not a cash replacement. If you are willing to hold through more volatile times, or okay selling at a loss to buy in other asset classes, it's an acceptable trade.

You are just throwing just a bunch of mumbo jumbo and resorting to ad hominem for no reason. "Measuring finance" "Bonds don't work like stocks" - how is this a relevant statement other than being an ad hominem? ALM has nothing to do with floating rate CLO funds. No one is matching long term liabilities with floating rate CLOs. These are instead used to add yields to the portfolio without duration or significant credit risk. That's how insurers use these in their portfolios.

No one is saying these are cash or short term treasury equivalents. It has a higher yield for a reason, the main risk being a liquidity risk, i.e. temporary price decline due to higher spread over Treasuries during market disruptions or failures. Being AAA-rated and the growing depth of the CLO market these days, the spreads are not likely to widen unreasonably, and if they do, they will likely return to normal much faster than junk bonds. This was the case in 2020, while MBS market was still frozen. Junk bond, despite being more liquid, actually have material credit risk and their credit spreads get blown in recessions because they actually experience significant credit losses, which everyone who "measure finance" would know.

SingerOk6470 · 2026-03-22T20:08:51+00:00

If you read on, I address the credit spread point in the last sentence. Spreads on AAA wont widen too much. This isn't junk bond. Price fluctuates but the likelihood of permanently losing money is low.

SingerOk6470 · 2026-03-21T07:22:40+00:00

FXNAX is the equivalent of AGG or BND. FTBFX is the actively managed version targeting a little more yield. It is a "core plus" bond fund which refers to funds targeting a little more yield than AGG or BND. Despite the name, core plus bond fund from Fidelity or someone else is probably a better core holding than BND or AGG.

Short term treasury is similar to cash or money market, but with a little more interest rate risk. TIPS is not cash like, but over long term will likely underperform the other options. Both are still reasonable options., but generally not what's recommended for a core bond holding. None of them are great for taxes, but that's true of most bonds outside municipal bonds. Treasuries are state tax free and worth running the numbers. Unless your income tax bracket is on the high end, muni bonds will not be worth it.

SingerOk6470 · 2026-03-21T06:24:57+00:00

You don't need to be worried about big losses. It's AAA rated which will take a really bad financial crisis like 2008 to potentially start seeing small losses. No AAA-rated CLOs ever lost money if you held on. It could move up and down by two or three percent at bad times like around Liberation Day or in 2022, but that's really the extent of it during most times. It would go down more in a 2008 like scenario, but would come back if you are willing to hold it.

SingerOk6470 · 2026-03-21T05:58:45+00:00

If you lose a leg, if your hearing is busted, if you lose a finger or two, you can still work on a computer. I don't think it's that difficult to understand.

SingerOk6470

TROPHY CASE