Best Index Investment Strategy?

[jively]

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two questions:
Why REIT? I understand mixing small cap, large cap, european, pacific, etc as a way to diversify so is REIT just adding in more diversification? Why REIT over any other sector specific fund?

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I think the academic researchers looked at the stock prices of all of the sectors. For almost every sector (financial, consumer discretionary, and so on), the average return had only to do with the amount of value vs. growth and the amount of large vs. small. Real estate stocks (REITs) were actually classified as a separate asset class as they moved in a completely different cycle.

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My portfolio looks similar to this but with a little bit more weight on international and significantly more weight on small cap and value. Any recommendations for an investor willing to assume a very large amount of risk for possible higher expected returns?

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I think tilting further toward small and value is OK if you have a high risk tolerance. Having a higher allocation to international is fine too as long as you are OK with "tracking error;" your portfolio will not move in synch with the US markets (and CNBC and so on). As long as you pick an allocation, rebalance periodically, and stick with the same allocation year in and year out, you should do well.

-Tom

[Sherpa]

Jively: Why do you have a focus on value and total market funds and no growth funds?

FWIW my portfolio (goal for balancing purposes) is

20% Large Value
20% Large Growth
10% Small Value
10% Small Growth
30% total International (fund is split 33% between Euro, Pacific, and Emerging)
10% REIT

(All vanguard funds)

[jively]

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Jively: Why do you have a focus on value and total market funds and no growth funds?

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Here is a good page regarding the value factor. From 1927-2005, value outperformed the market and the market outperformed growth, for both large stocks and small stocks in the US. Small cap growth had the lowest average return (9.33%) of all of the "corners" of the market.

-Tom