OP, what you are talking about is basically speculation, not investing. You may think that certain markets are undervalued and you may have one metric (P/E) to tell you so, but those are your opinions and you are but one human being. What makes you think that you know more than those who are paid thousands of dollars to do this for a living and have multiple metrics at hand at any time? And what makes you think that you know more than any of us who see the same indicators as you? And what makes you think that the markets don't reflect these facts? Best to stick to a solid investment plan as stated in your IPS and if you want to speculate do so with a portion of cash you're willing to lose (no more than 5% of your total).
For comparison, the ETF noted by the member above (GVAL) has an expense ratio of 0.69% while the Vanguard Total World Stock ETF (VT; an index ETF) has an expense ratio of 0.18%. These expense ratios aside, in the time that GVAL has been alive, it has underperformed VT by ~6%. This is likely due to the fact that it is much less diversified, a mere 95 stock holdings compared to VT's 6,290, but who's to say it won't continue?
My point being: it is first important to differentiate between investment and speculation. It is secondly important to adequately diversify one's investments. GVAL is not diversified in any real sense and your plan to capitalize upon market 'undervaluations' is fine so long as you recognize that it is not a long-term investment plan but a short-term trading plan.
Miles dividend did a good job of arguing against this.
I agree with his sentiments, and I think you're overstating the "against" arguments, RyeWhiskey.
OP is talking about a tactical tweak to his portfolio, using a low-cost, low-correlation, broadly diversified investment vehicle. I don't agree that 100 stock holdings across 10+ countries is undiversified. I don't agree that this qualifies as speculation. I don't think what he's doing qualifies as market timing - at least, not in the sense of people selling out their entire 401(k)s into cash because they "just have a bad feeling", etc.
OP is saying that, based on this particular barometer (CAPE), US market levels appear to be on the high end of the range. He's not saying a recession is imminent. He's not saying he wants to move to cash. He's not saying that he wants to buy an actively managed fund with a fee of 2%. He's saying, given that US valuations appear pricier, would it make sense to cheat on his asset allocation a bit and tweak his portfolio so that he's slightly shy on US stocks, and slightly heavier on international stocks?
OP, I think your strategy is sound, your metric of choice is reasonable (CAPE of world regions vs. CAPE of US), and the investment vehicle that we're kicking around is not a bad choice.
If you want to try to tweak your asset allocation by a small amount because you're not comfortable with valuations in the US, that is not a bad impulse, but don't overdo it. I think everyone replying here - whether they agree with your strategy or not - would suggest doing this in moderation if you do it at all. My personal suggestions would be:
- If you're going to do this, do it with a small percentage of your investment portfolio. 3% sounds like a lot, offhand. 5% to me seems about as high as I'd want to go in trying out this idea.
- If you do this, factor it into your overall asset allocation. If your portfolio is normally 50% US stocks / 25% international / 25% bonds (as an example), don't take a portion of your 'bonds' and apply that to your 'international' slice. If you want to do this because you're concerned about US valuations, the proper thing to do would be to rebalance into this investment so your new portfolio was 47% US / 28% international / 25% bonds. Tweak the numbers based on whatever your long term AA is, but don't take from the wrong section of your portfolio to add to this new tactical piece you're trying out.
- Be aware that your portfolio will almost certainly be more volatile in the short-run. International investments (particularly in distressed regions) and value investments tend to be bumpy rides. Don't get scared out and mentally prepare yourself for your 'international' portfolio to potentially have some lumpy years.
- Have some concrete metrics for when you'll rebalance back to a "neutral" asset allocation where the US is back to a CAPE that you feel offers better long-term values. Keep in mind your strategy is using a very long-term metric (CAPE, over 10 years), so you should be prepared for this to be a longer-term tweak, if you do it. You're probably looking at several years before equity markets make any kind of a major shift where you think, "Ah, now the US markets are more attractive than international", so don't go making this tweak and then expecting results to show up in a few months.
- Be prepared for this to potentially work out worse than a simple static allocation with periodic rebalancing. Just because you've picked a solid long-term metric and executed your strategy well, doesn't mean that this is a guarantee it will work. You're taking a calculated risk, but it is just that - a risk. So be aware of that.
Keep us posted if you do this - I'd be curious to hear how it works out. Best of luck.