I would like to have all of my files stored locally to a 4TB external SSD AND synced to iCloud. Is this possible?

You would need to move your home folder to the external drive, and disable optimize Mac storage.

Make sure you have a separate admin account set up internal Drive on your Mac so you can fix problems when it loses track of your external home folder.

So how do we do this?

It's pretty much a horrible idea, and there isn't any Apple articles. People have found it to be more problematic in Sonoma.

Essentially, you copy your Home folder to an external drive with permissions enabled. Then, follow this Apple article to the word, except for the renaming of the account. Where you would rename the home folder, just change the full path in that field to where it is on the external (i.e., /Volumes/ExternalDriveName/Users/shortusername)

Change the name of your macOS user account and home folder - Apple Support

If you don't follow the instructions, you will render your user account inaccessible.

The best option is to move all of your Apple Libraries to the External. You can assign the Photos, TV, Music (maybe others) to store files on an external. Don't forget to back up the external.

Why not attach an external HDD for storage of the "excess" data and leave the home folder alone. Messing with system files is playing with fire ... easy to get burned.

An external "Data" drive is a most often recommended solution and works very well. My 2016 MBP has a small internal disk and a 2TB external HDD works flawlessly. If you require greater speed, get a portable SSD. We have several of these too , Samsung T7 drives to be exact, and they work flawlessly too.

Just remember, if the data on the external drive is important, back it up to. All our Macs have multiple external drives for backups, bootable clones and data storage. Being secure does require some effort.

What's in your local iCloud Drive is what's "on iCloud"..

How much data do you need synchronized and available immediately? You don't have to store iCloud files locally ... you can turn that off.

The idea is to provide you room to securely store your data. If you have a need to have Terabytes of data immediately available on your local drive, and available on iCloud with local copies, it's time to invest in a new, or newer, Mac with an internal drive that meets that need.

Thank you! this is helpful. I have a follow up: My Desktop ad Document folders are not in my Home folder, since they are in my iCloud Drive. If it move Home over to the external SSD, will the files in the Desktop and Documents folders also be stored in the SSD and synced to my iCloud?

They are in your home, just hidden and obfuscated to make you think they are in iCloud. All other iCloud storage is also in your home Library folder.

So how do we do this?