Author Topic: INTL exposure in AA. Sanity check me?  (Read 3421 times)

Badass by 41

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INTL exposure in AA. Sanity check me?
« on: May 12, 2014, 12:55:30 PM »
After doing our research and putting our AA together (with much help from this forum and JLC) we have implemented the 4 fund Wealth Building portfolio recommended by JLC: VTSAX, VBTLX, VGSLX, VMMXX.

Now we're getting cold feet.  We've often seen thoughts that VTSAX holds large US based global companies and therefore adds INTL exposure to your portfolio, but haven't seen the same about bonds in VBTLX.

We're VTSAX/80%, VBTLX/10%, VGSLX/7%, VMMXX/3% but considering whether it would be prudent to add VTIAX and VTABX for a new AA of VTSAX/55%, VTIAX/25% VBTLX/7%, VTABX/3%, VGSLX/7%, VMMXX/3%.

We're 37/35yo and trying to FIRE in 5-6years.

Thoughts?

matchewed

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Re: INTL exposure in AA. Sanity check me?
« Reply #1 on: May 12, 2014, 01:27:17 PM »
Do you want international bonds?

I don't know if having 3% in VTABX is going to impact your portfolio in any meaningful manner.

As for VTSAX vs. having both VTSAX and VTIAX maybe you could back test your portfolio in some manner?

Perhaps ask yourself why the cold feet? What will you get from international funds? Do you know what purpose they serve in an AA?

MooseOutFront

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Re: INTL exposure in AA. Sanity check me?
« Reply #2 on: May 12, 2014, 01:33:36 PM »
I think right now, with US stocks seemingly high, is an easy time to talk yourself into diving into whatever international exposure you intend to have.

I got mine from reading Larry Swedroe books and settled on:

45% US
45% Intl
10% US REIT'

So really that's 55/45 US and I may end up being more comfortable with 65/35, but from what I read the difference between 30% international and 50% international isn't significant.

foobar

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Re: INTL exposure in AA. Sanity check me?
« Reply #3 on: May 12, 2014, 01:40:01 PM »
Invest in VTIAX. International gets a bad rap because recent performance has been poor. Long term they will return about the same as the US market while smoothing out your results. And no owning Coke is not the same as having international exposure any more than owning BMW gives you US exposure.  I would skip the international bonds.  3% just isn't enough to change anything and the papers I have read haven't suggest much in diversification.  If you were at like 40% bonds, I might think about adding in 10% international bonds but right now it just seems like added complexity.


After doing our research and putting our AA together (with much help from this forum and JLC) we have implemented the 4 fund Wealth Building portfolio recommended by JLC: VTSAX, VBTLX, VGSLX, VMMXX.

Now we're getting cold feet.  We've often seen thoughts that VTSAX holds large US based global companies and therefore adds INTL exposure to your portfolio, but haven't seen the same about bonds in VBTLX.

We're VTSAX/80%, VBTLX/10%, VGSLX/7%, VMMXX/3% but considering whether it would be prudent to add VTIAX and VTABX for a new AA of VTSAX/55%, VTIAX/25% VBTLX/7%, VTABX/3%, VGSLX/7%, VMMXX/3%.

We're 37/35yo and trying to FIRE in 5-6years.

Thoughts?

hodedofome

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Re: INTL exposure in AA. Sanity check me?
« Reply #4 on: May 12, 2014, 01:48:11 PM »
http://portfoliovisualizer.com/ViewHistoricalReturns Play around with that for a little bit.

I don't think it's crazy to diversify internationally at all.

Eric

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Re: INTL exposure in AA. Sanity check me?
« Reply #5 on: May 12, 2014, 02:29:16 PM »
And no owning Coke is not the same as having international exposure any more than owning BMW gives you US exposure.

Why do you think this is not the case?  If a large portion of Coke's profits (maybe even a majority) come from international markets, how is that not international exposure?

Badass by 41

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Re: INTL exposure in AA. Sanity check me?
« Reply #6 on: May 12, 2014, 06:07:58 PM »
Thanks for the feedback.

We did some backtesting on PortfolioVisualizer.com (thanks hodedofome) and it looks like VTIAX would smooth things out, but follows basically the same curve as VTSAX.  There was some inversion between VBTLX and VTABX, but as others have mentioned, it really didn't make a difference in the long run.

In terms of "cold feet" perhaps we're just in shock that investing can really be this easy.  Obviously there's risk, and we're currently very aggressive with our AA, but with a long view it appears to pay off.

foobar

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Re: INTL exposure in AA. Sanity check me?
« Reply #7 on: May 12, 2014, 06:23:30 PM »
It is a much more limited exposure. You end up missing whole sectors of their economies (i.e. banking and retail stores is a big one) and you don't get any of the currency and political risk hedging.   

This argument has been going on since the at least the mid 70s (when I started investing I read a lot of old magazines to get a feel for trends. Our library didn't go back past about 1976 in most mags). When international is sucking the arguments are we don't need it. The US has great companies that sell overseas, its cheaper to invest (it used to be a real pain to buy stocks and the mutual funds had 2%+ fees), and besides the performance is better. When overseas is performing well people talk about how their is a whole world of opportunities and why would you want to limit yourself to just the US.
 
And no owning Coke is not the same as having international exposure any more than owning BMW gives you US exposure.

Why do you think this is not the case?  If a large portion of Coke's profits (maybe even a majority) come from international markets, how is that not international exposure?