Author Topic: Domestic / I'ntl ratio for non-us citizen  (Read 2408 times)

Kilbim

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Domestic / I'ntl ratio for non-us citizen
« on: June 05, 2016, 02:50:50 PM »
So, I am in the process of building a 3-fund portfolio with Total Stock Market, Total International Stock market and Total Bond Market,
I have been reading around and they often suggest a higher percentage of "domestic" stocks, so total US stock market. But what if you aren't a US citizen? Are you supposed to still go higher with US stocks or not? Or in that case you should go higher with international stock market, since it is your "domestic"?

In my case it's even more complicated becausae my home currency is CHF, so neither USD or EUR. Total Stock Market for me means conversion from USD to CHF. While Total International Market means a combination of 66% USD to CHF and 33% EUR to CHF (for various reasons).

Thank you for your feedback
Cheers

nobodyspecial

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Re: Domestic / I'ntl ratio for non-us citizen
« Reply #1 on: June 05, 2016, 03:21:00 PM »
About 50% of the world's market cap is USA. At the moment it is also the only major market showing any signs of growth.
Except for any tax advantages or currency fluctuation concerns there isn't really much reason to hold more of your local market than its place in the world.

"Domestic" is a bit different for Americans just because it is such a large and diverse market, they would do less bad by being 100% domestic than you would by being eg. 100% Swiss 

Grog

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Re: Domestic / I'ntl ratio for non-us citizen
« Reply #2 on: June 05, 2016, 11:14:27 PM »
The advantage of domestic stocks (no currency) is washed away by less diversification (3 companies make 50% of the index). So is OK to just take a total world approach. Use 50%us, 50% rest of the world for the stocks, and make a 2 fund portfolio (on the other hand, buy bonds in Swiss chf).



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Kilbim

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Re: Domestic / I'ntl ratio for non-us citizen
« Reply #3 on: June 06, 2016, 12:35:09 AM »
The advantage of domestic stocks (no currency) is washed away by less diversification (3 companies make 50% of the index). So is OK to just take a total world approach. Use 50%us, 50% rest of the world for the stocks, and make a 2 fund portfolio (on the other hand, buy bonds in Swiss chf).



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Oks, then 50/50 it is.
For bonds, I have access to full USA bond market (USD) and different CHF bonds: swiss government short, medium and long term, and swiss  corporate bonds, all in CHF. I don't know how I should put them together. I was thinking about getting total USA bond,swiss government medium term and swiss corporations, but now I am not sure it's a good idea anymore. Any suggestions?
Thanks

Grog

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Re: Domestic / I'ntl ratio for non-us citizen
« Reply #4 on: June 06, 2016, 01:43:52 AM »
The way I see it: bonds are not in one's portfolio to drive returns. They are there to smooth volatility/rebalance opportunity. If you buy bonds in a foreign currency, you add the currency exchange volatility risk and kind of nullify the role of the bonds (reduction in volatility).

So bonds (my opinion) are to be bought domestic only, unless you are Greece or something like that.

Pick an allocation that yo uare comfortbale with (like 60/40) and buy 60% Total world (or if you don't have it: 30% US/30% rest of the world) and 40% Suisse Bonds. Buy an equal mix of length from 1 to 7 years. In Suisse bond is difficult to say what's best: short term bond may react better if interest rate start to increase, but at the moment they are giving you negative returns. Soooo.....just buy a mix and let the market worry.

Kilbim

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Re: Domestic / I'ntl ratio for non-us citizen
« Reply #5 on: June 06, 2016, 02:34:58 AM »
The way I see it: bonds are not in one's portfolio to drive returns. They are there to smooth volatility/rebalance opportunity. If you buy bonds in a foreign currency, you add the currency exchange volatility risk and kind of nullify the role of the bonds (reduction in volatility).

So bonds (my opinion) are to be bought domestic only, unless you are Greece or something like that.

Pick an allocation that yo uare comfortbale with (like 60/40) and buy 60% Total world (or if you don't have it: 30% US/30% rest of the world) and 40% Suisse Bonds. Buy an equal mix of length from 1 to 7 years. In Suisse bond is difficult to say what's best: short term bond may react better if interest rate start to increase, but at the moment they are giving you negative returns. Soooo.....just buy a mix and let the market worry.

What about corporate bonds etf?

Grog

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Re: Domestic / I'ntl ratio for non-us citizen
« Reply #6 on: June 06, 2016, 08:43:07 AM »
it depends. We have a very special situation with very low interest rates. Usually you want government bond because they tend to move in the other direction in respect to stock market, making for nice rebalancing opportunities. Swiss bond in particular have always exprienced huge cash inflows (driving up the price) during stock market crash because of the strength and the appeal of the Swiss franc.

Another point is that in general if you buy corporate bond, is because you want more returns than a government bond, but you want more return you should start with tilting your allocation towards more stocks (like doing 65/35 instead of 60/40). And I don't think they hold up as good as government bond during a recession (stock market crash, company fail, corporate bond becomes practically useless, although they are bound to be paid off before stock-holder).

In general I avoid them because they are much more correlated to the stock market so they don't really help me in reducing volatility.

Kilbim

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Re: Domestic / I'ntl ratio for non-us citizen
« Reply #7 on: June 06, 2016, 09:19:57 AM »
it depends. We have a very special situation with very low interest rates. Usually you want government bond because they tend to move in the other direction in respect to stock market, making for nice rebalancing opportunities. Swiss bond in particular have always exprienced huge cash inflows (driving up the price) during stock market crash because of the strength and the appeal of the Swiss franc.

Another point is that in general if you buy corporate bond, is because you want more returns than a government bond, but you want more return you should start with tilting your allocation towards more stocks (like doing 65/35 instead of 60/40). And I don't think they hold up as good as government bond during a recession (stock market crash, company fail, corporate bond becomes practically useless, although they are bound to be paid off before stock-holder).

In general I avoid them because they are much more correlated to the stock market so they don't really help me in reducing volatility.

So my actual choices are:
Vanguard Total Bond Market ETF (BND) USD (30 billions)
iShares Swiss Domestic Government Bond 1-3 years CHF (60 mio assets)
iShares Swiss Domestic Government Bond 3-7 years CHF (410 mio assets)
iShares Swiss Domestic Government Bond 7+ years CHF (122 mio assets)

I want bonds for stability obviously, but you said swiss bonds are something different from other bonds. Based on your feedback I decided to ignore corporate bonds.
Apart for that I am not sure what to buy anymore: you also said short-term bonds are riskier, and also that swiss bonds are riskier because their price go up in recessions and right now they might be overpriced. But USD bonds are risky because of currency risks.

So it seems my choices are:
iShares Swiss Domestic Government Bond 3-7 years CHF
iShares Swiss Domestic Government Bond 7+ years CHF

or
Vanguard Total Bond Market ETF (BND) USD
iShares Swiss Domestic Government Bond 3-7 years CHF

I am not sure I will hold my investment for 7+ years (I want to, but I can't be sure of that). Does this matter?
(I also don't trust buying only iShares Swiss Domestic Government Bond 3-7 years CHF and nothing else)

Thank you for your feedback.

GuitarStv

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Re: Domestic / I'ntl ratio for non-us citizen
« Reply #8 on: June 06, 2016, 09:23:55 AM »
I'm 20% Domestic (Canadian), 20% US, and 20% International.  The remaining 40% is bonds.

Grog

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Re: Domestic / I'ntl ratio for non-us citizen
« Reply #9 on: June 06, 2016, 11:46:39 PM »
It seems to me that you need ti take a step back and clear your head. I know it can be overwhelming :)
Try to write down your Investment Policy.

https://www.bogleheads.org/wiki/Investment_policy_statement

 Either you are investing as buy&hold for the long term or you are better off keeping cash. What are your goals? Why are you investing? Read some books about bonds and their role in an asset allocation. For instance 4 pillars of investing of Bernstein.

Having said that, I would do something like this:
30% us
30% international not-us
13% bond ch 1-3 yr
13% bond ch 3-7
14% bond ch 7+

But I'm just some stranger on the internet, try to invest to reach your goals and in products you understand, but to do that I strongly suggest an IPS (see link I gave you)


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larmando

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Re: Domestic / I'ntl ratio for non-us citizen
« Reply #10 on: June 08, 2016, 09:42:14 AM »
Also note that most Swiss government bonds are now sure to return less than 0 if held to maturity. So cash might be an option that gives you more, if you can hold it at 0%.