Bernstein Portfolio

[Gunny]

Hello fellow Mustachians.  I have been reeding Tyler's analysis on portfoliocharts.com and I am looking very closely at the Bernstein Portfolio as an AA once I begin SEPP from my TSP account.  If you are not familiar with this portfolio it consists of index funds comprised of 25% large cap value, 25% small cap value, 25% Deveoped International (Europe, Asia, Austrailia) and 25% short term US securities.  According to Tyler this portfolio will provide up to 5% SWR and 4% Sustained WR out to 30 years with very high probability of success.  This portfolio is easily replicated using TSP funds.  My concern is the volitility and poor performance of the Developed International index over the last ten years.  More volatile than either the S&P or the DOW and way under preformed both over the last ten years.  Does anyone use this portfolio?  What are your thoughts on the validity of including A Developed International Index fund in the mix?

[GorgeousSteak]

I think thats generally the reason people include international funds in their portfolio, specifically because they can behave differently than US stocks, and over a longer time line they have provided similar returns, so the combination provides the same high return with lower volatility.  True, they've been on the losing end the last 10 yrs, but thats really not that long, and to some, thats something in their favor currently.  Personally, I ask myself the question, is there a convincing reason why international companies should provide a worse return than domestic companies in the future?  I am no expert, but I have no suitable answer for that question, so I include them.

[Radagast]

Include international, Bernstein is a smart guy and included it for a reason.

A lot of the poor return is because of changes in currency value. About 15 years ago I went to Europe and $1 equaled about 1 Euro. Then $1.5 equaled 1 Euro because the dollar weakened. Over the past few years it went back to almost 1=1. Eventually it will reverse again and foreign stocks will appear to have better returns; then people will wonder why they had so little foreign stock. Plus, you never know if the US gov't will do something stupid like slash overseas trade, then foreign stocks will have much better returns.

[dude]

Hello fellow Mustachians.  I have been reeding Tyler's analysis on portfoliocharts.com and I am looking very closely at the Bernstein Portfolio as an AA once I begin SEPP from my TSP account.  If you are not familiar with this portfolio it consists of index funds comprised of 25% large cap value, 25% small cap value, 25% Deveoped International (Europe, Asia, Austrailia) and 25% short term US securities.  According to Tyler this portfolio will provide up to 5% SWR and 4% Sustained WR out to 30 years with very high probability of success.  This portfolio is easily replicated using TSP funds.  My concern is the volitility and poor performance of the Developed International index over the last ten years.  More volatile than either the S&P or the DOW and way under preformed both over the last ten years.  Does anyone use this portfolio?  What are your thoughts on the validity of including A Developed International Index fund in the mix?

Worse than that -- the I Fund has been a dog for 25 years.  See here:

http://www.tspfolio.com/tspfunds

It has barely managed to beat the zero-risk G Fund at a magnitude more risk (18% Std.Dev.), and has trailed the F Fund (3.9% Std.Dev.) by a full percentage point, and has trailed both the C and S Funds which have around the same Std.Dev.'s by 5% -- that's an enormous difference.  Bernstein has been saying for a long time that future growth is going to happen in international markets, and they do presently have far lower PE Ratios than U.S. stocks, but man, I'm just not a believer.  Japan has shown no signs of breaking free from their decade-plus long slump, the Euro area is still beset by all kinds of problems and uncertainty (Brexit, Grexit, Italy, Spain, refugee crisis, etc.), and U.S. megacorps have plenty of international exposure in today's global economy, that I just don't see the value of holding a quarter of one's portfolio in the MSCI/EAFE/I Fund.  I personally have 5%.

But yeah, as the old saying goes, "past performance is not an indication of future performance."

[Gunny]

Hello fellow Mustachians.  I have been reeding Tyler's analysis on portfoliocharts.com and I am looking very closely at the Bernstein Portfolio as an AA once I begin SEPP from my TSP account.  If you are not familiar with this portfolio it consists of index funds comprised of 25% large cap value, 25% small cap value, 25% Deveoped International (Europe, Asia, Austrailia) and 25% short term US securities.  According to Tyler this portfolio will provide up to 5% SWR and 4% Sustained WR out to 30 years with very high probability of success.  This portfolio is easily replicated using TSP funds.  My concern is the volitility and poor performance of the Developed International index over the last ten years.  More volatile than either the S&P or the DOW and way under preformed both over the last ten years.  Does anyone use this portfolio?  What are your thoughts on the validity of including A Developed International Index fund in the mix?

Worse than that -- the I Fund has been a dog for 25 years.  See here:

http://www.tspfolio.com/tspfunds

It has barely managed to beat the zero-risk G Fund at a magnitude more risk (18% Std.Dev.), and has trailed the F Fund (3.9% Std.Dev.) by a full percentage point, and has trailed both the C and S Funds which have around the same Std.Dev.'s by 5% -- that's an enormous difference.  Bernstein has been saying for a long time that future growth is going to happen in international markets, and they do presently have far lower PE Ratios than U.S. stocks, but man, I'm just not a believer.  Japan has shown no signs of breaking free from their decade-plus long slump, the Euro area is still beset by all kinds of problems and uncertainty (Brexit, Grexit, Italy, Spain, refugee crisis, etc.), and U.S. megacorps have plenty of international exposure in today's global economy, that I just don't see the value of holding a quarter of one's portfolio in the MSCI/EAFE/I Fund.  I personally have 5%.

But yeah, as the old saying goes, "past performance is not an indication of future performance."

Dude, pretty much how I see it.  Just wanted to throw it out there and get others' perspective. 

[fattest_foot]

I had noticed the same thing as dude, although I hadn't looked that far back to see that the I fund has been underperforming.

I currently don't hold any I funds; I'm all in S and C. I look at it like the VTSAX idea that the largest US companies have a lot of international exposure for me.

[forummm]

International hasn't done as well lately. But it outperformed the US if you go back from the 70s onward. The point is that they are less correlated and provide more stability. And you are guaranteed that one will underperform the other (which also means that one will outperform the other!). I am and will be internationally diversified. At some point the economy in the US will take a downturn and US stocks will dip. Likewise, international economics will improve and stocks there will rally (and in the meantime, continue to payout decent dividends).

[JZinCO]

Hello fellow Mustachians.  I have been reeding Tyler's analysis on portfoliocharts.com and I am looking very closely at the Bernstein Portfolio as an AA once I begin SEPP from my TSP account.  If you are not familiar with this portfolio it consists of index funds comprised of 25% large cap value, 25% small cap value, 25% Deveoped International (Europe, Asia, Austrailia) and 25% short term US securities.  According to Tyler this portfolio will provide up to 5% SWR and 4% Sustained WR out to 30 years with very high probability of success.  This portfolio is easily replicated using TSP funds.  My concern is the volitility and poor performance of the Developed International index over the last ten years.  More volatile than either the S&P or the DOW and way under preformed both over the last ten years.  Does anyone use this portfolio?  What are your thoughts on the validity of including A Developed International Index fund in the mix?

Worse than that -- the I Fund has been a dog for 25 years.  See here:

http://www.tspfolio.com/tspfunds

It has barely managed to beat the zero-risk G Fund at a magnitude more risk (18% Std.Dev.), and has trailed the F Fund (3.9% Std.Dev.) by a full percentage point, and has trailed both the C and S Funds which have around the same Std.Dev.'s by 5% -- that's an enormous difference.  Bernstein has been saying for a long time that future growth is going to happen in international markets, and they do presently have far lower PE Ratios than U.S. stocks, but man, I'm just not a believer.  Japan has shown no signs of breaking free from their decade-plus long slump, the Euro area is still beset by all kinds of problems and uncertainty (Brexit, Grexit, Italy, Spain, refugee crisis, etc.), and U.S. megacorps have plenty of international exposure in today's global economy, that I just don't see the value of holding a quarter of one's portfolio in the MSCI/EAFE/I Fund.  I personally have 5%.

But yeah, as the old saying goes, "past performance is not an indication of future performance."

If I was Tyler I would say some intelligent thing about how you cannot consider Intl alone when considering adding Intl. And that the cumulative effects of holding each asset in the Bernstein portfolio is not additive. Then I would post some interesting graphics to demonstrate the emergent properties of the portfolio vs each asset in isolation.

But I'm not Tyler.

[Metric Mouse]

International hasn't done as well lately. But it outperformed the US if you go back from the 70s onward. The point is that they are less correlated and provide more stability. And you are guaranteed that one will underperform the other (which also means that one will outperform the other!). I am and will be internationally diversified. At some point the economy in the US will take a downturn and US stocks will dip. Likewise, international economics will improve and stocks there will rally (and in the meantime, continue to payout decent dividends).

I could see the dividend argument, but everything else is countered by Dude's post. If America tanks, who is going to be buying all of the shit the rest of the world is making? We're the largest consumer market; when we sink we tug everyone else down a bit as well. Look at 2008. If the international market takes off, we're the 2nd largest manufacturing base; just means more rich people to buy the crap we make.

For all the reasons dude mentioned (and, more accurately, the underlying reasons those reasons are reasons) domestic stock is a pretty good bet all-around. Some diversification is ok, but too much could slow returns down.  I bet my money on it every day.

[Yaeger]

We have a relatively stagnant economy with a low GDP growth rate year after year, in a recovery. We haven't topped 5% since Reagan. We haven't been over 3% since Bush. P/E ratios on domestic stocks have skyrocketed. We're limited in our ability to spend our way through another major financial catastrophe such as another major recession or a major war. We've seen the national debt as a percentage of GDP skyrocket for no reason other than we want to keep entitlements solid and unsustainably increasing.

I don't see why people have this faith in the American economy. It's only a matter of time until confidence in our economy wilts, people stop investing into it, people stop wanting our bonds, and we lose reserve currency status. Nothing I've seen in the political landscape has given me the slightest inkling that the people will vote for fiscal responsibility. If anything, we're going the other way. We can't tax ourselves into prosperity, and no one seems to be concerned with our dismal 2% annual growth rate.

I've been buying foreign stocks in a mix between developed market and emerging at about 40-50% of my portfolio, especially since I believe the dollar is so high. It's a bargain.

[LLCoolDave]

If you have a diversified portfolio you will always have an asset class that you hate. My international allocation is 35%

[Metric Mouse]

I don't see why people have this faith in the American economy.

Demographics, geography, energy, climate and military, mainly. Some countries have some of these. A few have a few of them. Only America has all of them working gangbusters for it.

[dude]

I don't see why people have this faith in the American economy.

Demographics, geography, energy, climate and military, mainly. Some countries have some of these. A few have a few of them. Only America has all of them working gangbusters for it.

Not to mention freedom, democracy (impure and flawed as it is), the best post-secondary education institutions in the world (Harvard, MIT, Stanford, et al, is where rich folks abroad send their brilliant kids), and one of the lowest tax rates in the world.

[Metric Mouse]

I don't see why people have this faith in the American economy.

Demographics, geography, energy, climate and military, mainly. Some countries have some of these. A few have a few of them. Only America has all of them working gangbusters for it.

Not to mention freedom, democracy (impure and flawed as it is), the best post-secondary education institutions in the world (Harvard, MIT, Stanford, et al, is where rich folks abroad send their brilliant kids), and one of the lowest tax rates in the world.

I would argue that those are merely an unintentional off-shoot of the above points, and any ill-effects of them are masked by the overwhelming positives of the issues mentioned previously.