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Short Summary
Main recommendation: Rob Berger does not recommend "VOO and Chill" (putting equity money only in Vanguard's S&P 500 ETF, VOO) for himself, though he acknowledges the strong historical case for it and says it may suit others. He keeps a diversified portfolio of six or seven funds that includes U.S. large, small and value stocks, international developed and emerging markets, and REITs. He frames the choice as personal, based on how much diversification one is comfortable holding over a long period.
Key Points
- In a 35-year Portfolio Visualizer test starting with $10,000, U.S. large cap alone ended near $480,000 versus about $266,000 for a 50/50 U.S./international mix, with similar volatility.
- International stocks helped early on and outperformed until roughly 1995, but U.S. large cap pulled ahead afterward and held a long lead, especially over the last decade.
- Historical U.S. small cap value outperformed by a wide margin, ending near $1.8 million for large cap versus about $7 million for small cap value in a test starting in 1972, though he notes small cap value has lagged in recent years.
- Berger argues the U.S. case rests on more than history, citing a diverse economy, strong education, regulation, and free markets, but warns that the U.S.'s past dominance may not continue.
- Berger's own test is whether he could hold a portfolio unchanged for 25 years with markets closed; he says a U.S.-only portfolio would not satisfy him.
Details Worth Noting
- Concrete instructions: Berger's own method is to decide how much diversification you can stay comfortable with, then build it. Set your horizon (he uses 25 years), imagine you cannot sell or buy anything for that whole period, and choose the portfolio you would still be comfortable holding. Test historical returns over different time periods, since the chosen period can change the outcome. He does not give specific amounts, frequencies, or a named fund list for others beyond the examples he mentions.
- Diversity examples he cites: the Vanguard Small Cap Value fund holds roughly twice as many companies as the S&P 500 (about 1,000), and the Vanguard Small Cap Index holds about 1,560 equities, roughly three times as many. Vanguard Mid Cap Value holds about 211 companies (versus about 1,000 for small cap value).
- Test mix he ran: a 50/50 split of U.S. mid cap value and U.S. small cap value still beat U.S. large cap, though by less than 100% small cap value did.
- Caveats: he notes that max drawdown was a few percentage points worse with international stocks in the 35-year test, that small cap value has lagged in recent years, and that the first decade of the 2000s favored international stocks.
- He says he holds a value-tilted approach partly for historical reasons and partly to match his individual stock picking, and owns a REIT fund and international developed and emerging funds.
- He describes VTI and Chill (Vanguard Total U.S. Stock Market) as also not enough diversification for him.
Bottom Line
VOO and Chill is historically strong for U.S. large caps, but Berger's view is that the right level of diversification depends on your own long-term comfort, and for him that means adding small cap, value, REITs, and international exposure.
