Vanguard has a nice chart I can't find at the moment that shows being 30-40% international actually lowers the risk in the portfolio.
https://personal.vanguard.com/pdf/icriecr.pdf
http://www.vanguard.com/pdf/ISGGEB.pdf
Reading this paper actually solidifies the case for a lower than 40% diversification in international funds and rebalancing the allocation depending on "the global market capitalization". It does a great case for reduction in volatility for your portfolio, and is great for implementing it close or in retirement (and even adding bonds), but I see more benefit in an 80/20 allocation.
Here are the 5 takeaways I have.
1) Great for volatility reduction
2) Currency does not correlate well with the stock market
3) Market capitalization matters
4) US and global market will keep trading places in outperforming each other
5) US and global markets are beginning to correlate a lot more
I am looking at a 10-15yr time frame and this leaves me with a few questions. Which market outperforms who most of the time? And which allocation of US and International funds would be most optimal, when willing to ride out volatility over a decade? I guess these are questions that I need to answer for myself.
60% VTI 40% VXUS works fine for me. Average ER = 0.086%. Where else can you buy the whole world for 0.086%? ;)
Buying the world, definitely reduces your risk, but also affects the reward :)
Why not? What do you know about the (future) state of the global economy that we don't?
"You should go to China."? :)
Quote from Looper
Don't know anything but I know I should make an international investment, and figure out what percentage that should be. Evidence shows 40% might be too high for me.