IPS Update - Going international: VXUS?

[TomTX]

So, bonds are not part of this discussion. I will have a pension, fits the bond "slot" well enough for me.

I am a fan of keeping it simple, broad based and low cost.

Since I've been over the $200k mark in stocks (100% VTI) - I have been thinking about diversifying internationally. Scary step for me, need to modify my IPS (currently and for the last decade+: Put 100% in VTI).
 
Roughly half the current VTI is in Traditional, half in Roth. All at Merrill Edge, plenty of free trades available.

I was thinking of changing my allocation to 60% VTI, 40% VXUS, rebalancing annually - or if I notice it is off by more than 5%.

Any suggestions for a "better" International ETF?

[markbike528CBX]

If international is a little scary at the moment, I suggest a US small cap fund.  VTI is a "total" fund, but in practice it is essentially S&P500 with some scraps of lower capitalization.    My personal tilt is  about  40 % VTSAX (VTI) 40% VSIAX (Small cap value) and a little 5% international (a 401K offering of RERGX  EuroPacific Growth Fund/A =    American Funds EuPc;R-6  0.50% fee ) with cash/gold soaking up some return opportunities :-).

[The 585]

I currently carry that exact allocation (60% VTSAX, 40% VTIAX, 0% bonds) and haven't looked back. This is my allocation for all investment accounts -- 401k, Roth IRA, taxable accounts, and HSA -- and I plan to maintain it throughout accumulation and into early retirement due to its simplicity. I think it's a great way to represent a globally diversified market.

[Le Barbu]

Excluding my Canadian stock index bias...

30%VTI
20%VBR
50%VXUS

[Kalergie]

Excluding my Canadian stock index bias...

30%VTI
20%VBR
50%VXUS

Curious to hear why VBR and not VB or VBK? Thank you!

[PDXTabs]

I just buy VTWSX and let Vanguard handle the split for me. Right now VTWSX is approximately 52% US / 48% international.

[Le Barbu]

Excluding my Canadian stock index bias...

30%VTI
20%VBR
50%VXUS

Curious to hear why VBR and not VB or VBK? Thank you!

Just because I wanted a small cap value tilt

[TomTX]

I just buy VTWSX and let Vanguard handle the split for me. Right now VTWSX is approximately 52% US / 48% international.

Expense ratio is noticeably higher than DIY, and I would need to go back to Vanguard (which is fine, but I've decided to work signup bonuses)

[TomTX]

Good input, folks. I probably am too light on small cap just due to the structure of VTI. Current thought is now:

40% VTI
20% VB
40% VXUS

[Kalergie]

Is there a breakdown of VTI on how the Mega/Large/Mid/Small cap mix has changed over the years?

[TomTX]

Is there a breakdown of VTI on how the Mega/Large/Mid/Small cap mix has changed over the years?

Here's the current breakdown (I knew it was skewed large, hadn't realized HOW skewed. 10 largest companies are >16% of the value...)

http://portfolios.morningstar.com/fund/summary?t=VTI

http://www.etf.com/VTI

[Kalergie]

Thanks. Yes, I had also noticed but never worried about it really. In the end of the day, this is what index investing is. Adding small caps would essentially mean betting against large caps. No one knows if that is a good or bad tilt.
 

[TomTX]

Thanks. Yes, I had also noticed but never worried about it really. In the end of the day, this is what index investing is. Adding small caps would essentially mean betting against large caps. No one knows if that is a good or bad tilt.

Yes and no. Even if large cap and small cap do equally well, if they are out-of-sync (ie, large cap does well this year, small cap next year) then rebalancing means ending up with a larger long-term return.

[Retire-Canada]

Yes and no. Even if large cap and small cap do equally well, if they are out-of-sync (ie, large cap does well this year, small cap next year) then rebalancing means ending up with a larger long-term return.

Rebalancing does not mean you'll necessarily get larger returns long-term. You might you also might not. It's just luck which way things turn out for you. Rebalance to maintain your desired asset allocation/risk profile. Don't rebalance because you think it will result in higher returns.

[Kalergie]

Yes and no. Even if large cap and small cap do equally well, if they are out-of-sync (ie, large cap does well this year, small cap next year) then rebalancing means ending up with a larger long-term return.

I don't believe this is 100% accurate but I'm not versed or educated enough in the matter to make a reasonable argument against it. Therefore, I buy an index fund and don't tinker with it. :D

[Le Barbu]

Yes and no. Even if large cap and small cap do equally well, if they are out-of-sync (ie, large cap does well this year, small cap next year) then rebalancing means ending up with a larger long-term return.

Rebalancing does not mean you'll necessarily get larger returns long-term. You might you also might not. It's just luck which way things turn out for you. Rebalance to maintain your desired asset allocation/risk profile. Don't rebalance because you think it will result in higher returns.

I think you’re right when rebalancing between stocks and bonds. Not sure this apply between 2 assets with +/- same expected long term return like US vs ex-US or large vs small stocks

Bonds, cash, treasuries, gold, etc all return close to inflation (long term)

Stocks are aimed to outperform inflation. Rebalancing 2 indexes should lower your portfolio volatility AND boost return. If done properly!

Maybe I am missing something?

[TomTX]

The effects of rebalancing look to be less obvious than I thought, and unfortunately a lot of the "analysis" I came across in a quick search has serious drawbacks. Examples: Performed over FAR too short of a timeframe, performed just for stock/bonds, performed using bizarre metrics, etc.

Here's an analysis I found using all-stock rebalancing over a reasonable timeframe (1926 forward):

https://www.advisorperspectives.com/articles/2014/04/15/does-rebalancing-really-pay-off

The takeaway was that rebalancing came out ahead more often (70% of the time) - but the 30% of the time when not rebalancing came out ahead, it was roughly twice as far ahead. Nearly a wash.

[Retire-Canada]

Bonds, cash, treasuries, gold, etc all return close to inflation (long term)

Stocks are aimed to outperform inflation. Rebalancing 2 indexes should lower your portfolio volatility AND boost return. If done properly!

Maybe I am missing something?

I would agree with getting lower volatility if the assets are not highly correlated. That's a function of the AA you have chosen and rebalancing ensures you maintain that AA over time.

I don't agree with the expectation that it will produce higher returns regardless of whether you are rebalancing between stocks or bonds or any other assets. The problem is you will often be selling an asset that is going higher in value for one that is not generating as good a return. This is like putting the brakes on your portfolio. There is also the case where you sell one asset at the top of its run and buy the other at the bottom of its drop. That will generate a higher return.

The problem is you can't know in advance if the rebalancing scheme you picked will luck out and time market movements well or not. So you can't assume it will produce a higher return. It may and it may not.

It will ensure you maintain your desired AA. That's why I would rebalance.

[Le Barbu]

Bonds, cash, treasuries, gold, etc all return close to inflation (long term)

Stocks are aimed to outperform inflation. Rebalancing 2 indexes should lower your portfolio volatility AND boost return. If done properly!

Maybe I am missing something?

I would agree with getting lower volatility if the assets are not highly correlated. That's a function of the AA you have chosen and rebalancing ensures you maintain that AA over time.

I don't agree with the expectation that it will produce higher returns regardless of whether you are rebalancing between stocks or bonds or any other assets. The problem is you will often be selling an asset that is going higher in value for one that is not generating as good a return. This is like putting the brakes on your portfolio. There is also the case where you sell one asset at the top of its run and buy the other at the bottom of its drop. That will generate a higher return.

The problem is you can't know in advance if the rebalancing scheme you picked will luck out and time market movements well or not. So you can't assume it will produce a higher return. It may and it may not.

It will ensure you maintain your desired AA. That's why I would rebalance.

In fact, I never really « rebalance » (sell + buy)

New money goes to the lagging asset to get back on target AA

Over 5 years, this was enough to stay on track

[Retire-Canada]

In fact, I never really « rebalance » (sell + buy)

New money goes to the lagging asset to get back on target AA

It's the same thing.

[Le Barbu]

In fact, I never really « rebalance » (sell + buy)

New money goes to the lagging asset to get back on target AA

It's the same thing.

What is your AA?

Mine is 30%ZCN, 25%VTI, 10%VBR and 35%VXUS (roughtly) because in my smaller accounts, XAW is the only holding that count for ex-Canada but this is less than 5% or total now. I like simplicity, 4 different holdings across 6 accounts, most of them hold only 1 ETF, some other 2

[Retire-Canada]

What is your AA?

CDN 20%
US 50%
Int'l Developed 15%
Int'l Emerging 15%
Stocks 100%
Bonds 0%

[Le Barbu]

What is your AA?

CDN 20%
US 50%
Int'l Developed 15%
Int'l Emerging 15%
Stocks 100%
Bonds 0%

Looks good to me, someday I wish my portfolio would be more like:

CDN 25%
US 40%
Int’l 35%