Author Topic: Is 100% VTSAX crazy?  (Read 12925 times)

earlyretireewannabe

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Is 100% VTSAX crazy?
« on: May 16, 2016, 11:02:54 PM »
Hello!

First-time poster here, but long-time reader.

Currently, my portfolio is 100% VTSAX. I plan on retiring in around 5 years with around $1.5 million. I will be around 35. Is 100% VTSAX too crazy for a 5 year time period?

Wanting to hear opinions :)

Dragonstrike

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Re: Is 100% VTSAX crazy?
« Reply #1 on: May 16, 2016, 11:12:12 PM »
VTSAX isn't crazy at all, with the low management fees and the diversification of that fund.  You should be good, but remember, what is your Investor Policy Statement, what are your retirement goals, how much money do you want to receive in retirement to be financially independent, etc.

If anything, read the stock series by jpcollins.

Also, and this is only to curb my curiosity, what is your current job that will entail you to retire at 35 with at least 1.5 million invested?

Radagast

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Re: Is 100% VTSAX crazy?
« Reply #2 on: May 16, 2016, 11:41:22 PM »
It's not bad, especially if you spend cautiously for the first few years. In my opinion some type of diversification is always best, whatever method you use to get it. A few ideas, which you may use some all or none of:
-add a 30% international stock allocation, which historically minimized volatility
-spend the next few years maxing out series I savings bonds (my current fad)
-gradually work up to a 20% total bond index allocation over the next 5 years, then gradually reduce it back to 0% over the course of the subsequent 10 years to minimize sequence of returns risk
-add a 20% bond allocation and keep it
-own a house outright
-Etc.

Retire-Canada

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Re: Is 100% VTSAX crazy?
« Reply #3 on: May 17, 2016, 06:40:39 AM »
I'd want to be [and I am] more diversified than that. I'm 50%US stocks and 50% other countries.

SuperSecretName

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Re: Is 100% VTSAX crazy?
« Reply #4 on: May 17, 2016, 07:24:53 AM »
it is really two questions:

1 - is 100% stocks crazy?  IMO, no.  I am also 100% stocks.

2 - is 100% USA stocks crazy?  IMO, yes.  You need international diversification.  Vanguard target retirement funds are about 40%, and that is good for me.

Mrs. Healthywealth

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Re: Is 100% VTSAX crazy?
« Reply #5 on: May 17, 2016, 07:42:30 AM »
Explore portfoliocharts.com, it compares a bunch of portfolios including 100%VTSAX. What interesting for me is the calculator he has that gives you the Sustainable and safe withdrawal rates. Since my portfolio is pretty aggressive (90/10, 20% of which is international stocks), my SWR is potentially lower than other options.  Congrats on how far you've come, woohoo

forummm

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Re: Is 100% VTSAX crazy?
« Reply #6 on: May 17, 2016, 09:54:18 AM »
I would suggest diversifying internationally. Some significant percentage of VTIAX would do the trick. Then you'd own the globe. The global market cap is about 50/50 between the two.

Just be ready for a bit of a ride going 100% stocks. I plan to do the same. Don't panic when the market drops 50% (which it probably will occasionally).

Fudge102

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Re: Is 100% VTSAX crazy?
« Reply #7 on: May 17, 2016, 10:41:23 AM »
Replying here to chime in as I'm also curious.  Moving from a financial advisor who did a poor job matching the market on top of the fees and high fund charges.  Working the move of everything over at Vanguard and trying to figure out where to put everything.  VTSAX and VBMFX are my two at the moment I've put into, still plenty to share.

Now if the taxable accounts were as easy to trade as the non taxable...  How to reduce that tax bill...

gluskap

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Re: Is 100% VTSAX crazy?
« Reply #8 on: May 17, 2016, 11:17:26 AM »
I'm 100% VTSAX too but I also have a larger emergency fund so if something happens I won't need to sell if market is down.  I think 5 years sounds like a short time span but remember you will be retired for over 20-30 years.  You won't be pulling out all your money in 5 years just a years worth of expenses at a time.  The larger portion of your nest egg will still be invested for a long time period and we all know that over a longer time period, the market has always gone back up.  So for that reason I'm comfortable being 100% in stocks.  At some point I will probably add in some international exposure as well to diversify but for now I like to just keep it simple.

webguy

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Re: Is 100% VTSAX crazy?
« Reply #9 on: May 17, 2016, 01:54:21 PM »
I echo what others have said. 100% stocks is OK at your age but you should diversify internationally so that if the US market tanks you don't get burned.

Telecaster

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Re: Is 100% VTSAX crazy?
« Reply #10 on: May 17, 2016, 01:56:15 PM »
Hello!

First-time poster here, but long-time reader.

Currently, my portfolio is 100% VTSAX. I plan on retiring in around 5 years with around $1.5 million. I will be around 35. Is 100% VTSAX too crazy for a 5 year time period?

Wanting to hear opinions :)

It isn't crazy, but think of it this way.  You are retiring in five years.  But you'll be living for another 30-50 years after that.   So that's really your investment horizon.   

The_Dude

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Re: Is 100% VTSAX crazy?
« Reply #11 on: May 17, 2016, 02:50:49 PM »
Explore portfoliocharts.com, it compares a bunch of portfolios including 100%VTSAX. What interesting for me is the calculator he has that gives you the Sustainable and safe withdrawal rates. Since my portfolio is pretty aggressive (90/10, 20% of which is international stocks), my SWR is potentially lower than other options.  Congrats on how far you've come, woohoo

Great site.  I found this chart very thought provoking.


It's too easy to get focused on the portfolio with the highest return track record rather than the best combination of returns and volatility (which I interpret to really be the sequence of returns risk).

Telecaster

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Re: Is 100% VTSAX crazy?
« Reply #12 on: May 17, 2016, 03:37:20 PM »

It's too easy to get focused on the portfolio with the highest return track record rather than the best combination of returns and volatility (which I interpret to really be the sequence of returns risk).

Indeed, always something good to keep in mind.  One caution about relying too heavily on that site (and it is fabulous, I love it), is that the backtests are short.   One consequence of the inflation spike in the late 1970s, is that bonds did really well in the following decades until the hangover worse.  Will that sequence of events happen again?  Probably, but probably not for decades.   

forummm

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Re: Is 100% VTSAX crazy?
« Reply #13 on: May 17, 2016, 05:55:05 PM »

It's too easy to get focused on the portfolio with the highest return track record rather than the best combination of returns and volatility (which I interpret to really be the sequence of returns risk).

Indeed, always something good to keep in mind.  One caution about relying too heavily on that site (and it is fabulous, I love it), is that the backtests are short.   One consequence of the inflation spike in the late 1970s, is that bonds did really well in the following decades until the hangover worse.  Will that sequence of events happen again?  Probably, but probably not for decades.   

And I also refuse to invest in things that don't provide a return--like gold. Even if it some backtests indicate that it was a useful part of a portfolio in the past, I would rather take my chances with something that generates income or has intrinsic growth.

earlyretireewannabe

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Re: Is 100% VTSAX crazy?
« Reply #14 on: May 17, 2016, 08:06:59 PM »
Thank you everyone! Anyone else? I'm going to do my research, of course, but I'll most likely add some international to the mix.

Telecaster

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Re: Is 100% VTSAX crazy?
« Reply #15 on: May 17, 2016, 08:15:11 PM »

And I also refuse to invest in things that don't provide a return--like gold. Even if it some backtests indicate that it was a useful part of a portfolio in the past, I would rather take my chances with something that generates income or has intrinsic growth.

I always thought so too.   You can run all the backtests you want, but you also have to ask yourself if the backtest makes sense.   Does it make sense to include an asset like gold that fluctuates in value, but never has intrinsic growth?   I just don't see how it does. 

Driko

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Re: Is 100% VTSAX crazy?
« Reply #16 on: May 17, 2016, 10:25:02 PM »
20-30 years? Hes 35, he could be retired for 65 years or more. I think that fund is fine but as you know if the market tanks and depending on your current COL you may need to alter plans to adapt.

ysette9

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Re: Is 100% VTSAX crazy?
« Reply #17 on: May 18, 2016, 09:38:46 AM »
Quote
Currently, my portfolio is 100% VTSAX. I plan on retiring in around 5 years with around $1.5 million. I will be around 35. Is 100% VTSAX too crazy for a 5 year time period?

Good morning! I don't have much to add beyond what others have already said regarding international diversification. We are in a relatively similar position. Our goal is to be financially independent by 2020 when we are 39/40 with a stash of around $1.8M. Right now we are about 95% stock, 5% bonds across our entire portfolio. Currently the international mix is only about 25% of our stock assets but we are slowly working on getting that up to 40%. We are not selling VTSAX but rather just investing all of our weekly savings into VTIAX until we reach the target allocation. You may choose to do something similar if you want to increase your international exposure since that means you don't have to worry about any tax implications of selling one fund and buying another.

Captain Cactus

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Re: Is 100% VTSAX crazy?
« Reply #18 on: May 18, 2016, 11:34:25 AM »
I'm about 80% VTSAX, 20% VTIAX (plus an additional $13k in individual stocks for fun).

100% VTSAX isn't totally nuts.  It's not like 100% in gold bullion or something. 

dandypandys

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Re: Is 100% VTSAX crazy?
« Reply #19 on: May 18, 2016, 11:36:50 AM »
i decided to do the Three fund after reading this huge long thread on it
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005&start=1400

The_Dude

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Re: Is 100% VTSAX crazy?
« Reply #20 on: May 18, 2016, 06:56:31 PM »

It's too easy to get focused on the portfolio with the highest return track record rather than the best combination of returns and volatility (which I interpret to really be the sequence of returns risk).

Indeed, always something good to keep in mind.  One caution about relying too heavily on that site (and it is fabulous, I love it), is that the backtests are short.   One consequence of the inflation spike in the late 1970s, is that bonds did really well in the following decades until the hangover worse.  Will that sequence of events happen again?  Probably, but probably not for decades.

Yep.  I did some playing with the numbers on cfiresim yesterday after spending more time reading that site and was unable to replicate the differing results between 100% equity vs 60% equity and 40% bonds.  Using cfiresim to find the maximum initial spending (aka safe withdrawal rate) over a 30 year period with 95% success then 100% equity is 3.99% and 60/40 is 3.89. 

Changing it to a 40 year retirement changes the results as follows:
100% = 3.71%
90/10 = 3.73%
80/20 = 3.74%
70/30 = 3.67%
60/40 = 3.55%
50/50 = 3.47%

Quite a bit different than the portfoliocharts site.
« Last Edit: May 18, 2016, 07:22:10 PM by The_Dude »

Tyler

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Re: Is 100% VTSAX crazy?
« Reply #21 on: May 18, 2016, 08:12:23 PM »
Good observation.

Everything has a tradeoff.  The benefit of cFIREsim is that it has stock and bond data going back to the late 1870s.  The tradeoff is that is has relatively few asset options that may not accurately model your own personal portfolio (for example, no international stocks).  The benefit of Portfolio Charts is that it has many more asset options that can have large effects on withdrawal rates.  The tradeoff is that it only has data back to 1972.  It's important to understand the assumptions and limitations of any tool you use, and many of these issues are covered in the FAQ.

I personally love cFIREsim and think it's an awesome resource.  IMHO, both tools used in conjunction can paint a more complete picture than either one can alone. 
« Last Edit: May 18, 2016, 11:20:56 PM by Tyler »

drudgep

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Re: Is 100% VTSAX crazy?
« Reply #22 on: May 18, 2016, 09:30:33 PM »
I don't think VTSAX is crazy. Here is my question... why add so much in international stock funds? Seems that the returns for the last 10 years have been pretty poor, whereas the US second largest financial meltdown seemed to happens 8-9 years ago- and the US equity returns far outpace the international result.

I understand one might say "Well what if the US has a huge collapse and you lose everything at 70..." while this may be true - if it is indeed that bad for a 80-90% drop in the Stock market- we have larger issues. And if that if your fear- why not invest in CDs or Gold or bullets. What makes the international stock market so different?

You also have to consider the opportunity cost in loss of revenue by putting 50% of your portfolio in international that has grew 2% compounded over 10 years. Also to take into consideration- most all of the S&P 500 companies are now global companies- in that global current events can affect them, thus there is some international exposure there.

Just curious as that is my stand of US Equity Index funds... thoughts?

Mrs. Healthywealth

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Re: Is 100% VTSAX crazy?
« Reply #23 on: May 18, 2016, 09:43:19 PM »
cfiresim, firecalc, the retirement calculator from Personal Capital are the 3 I use often. At the same time Tyler's portfolio charts site has given me some great info...there's been tons of discussion on this forum about the portfoliocharts site. 

I would feel more comfortable adding bonds or something to tame the highs and lows once FI'd. only cause if that's what I'm depending on, I would prefer it to be a little more stable. But I think you said you're fine with a 2% WR, in which case if you can stomach the losses and sleep at night, that's what matters most. Oh and having a plan b is also a good idea.

Jeremy E.

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Re: Is 100% VTSAX crazy?
« Reply #24 on: May 18, 2016, 10:10:08 PM »
I don't think it's crazy, personally I am part VTSAX, and part VINIX (S&P 500, this is offered in my 401k and VTSAX is not). So 100% US stock for me as well. When I retire, I will be flexible and will spend less or work if the market does bad. Historically, most people that use the 4% rule will end up having a lot more money than they need after 10 years or so. If I get to the point in which I have a lot more money than I need, I might invest in something less risky, maybe bonds if they have better interest rates than they do now. Some things you should know, with 100% VTSAX, you have a large amount of international exposure, as many US publicly traded companies export a lot of goods.


Some articles that may help elaborate
http://jlcollinsnh.com/2012/09/26/stocks-part-xi-international-funds-2/
http://www.gocurrycracker.com/path-100-equities/
http://jlcollinsnh.com/2014/06/10/stocks-part-xxiii-selecting-your-asset-allocation/
http://jlcollinsnh.com/2015/08/25/mr-markets-wild-ride/

Radagast

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Re: Is 100% VTSAX crazy?
« Reply #25 on: May 18, 2016, 11:40:54 PM »
I don't think VTSAX is crazy. Here is my question... why add so much in international stock funds? Seems that the returns for the last 10 years have been pretty poor, whereas the US second largest financial meltdown seemed to happens 8-9 years ago- and the US equity returns far outpace the international result.

I understand one might say "Well what if the US has a huge collapse and you lose everything at 70..." while this may be true - if it is indeed that bad for a 80-90% drop in the Stock market- we have larger issues. And if that if your fear- why not invest in CDs or Gold or bullets. What makes the international stock market so different?

You also have to consider the opportunity cost in loss of revenue by putting 50% of your portfolio in international that has grew 2% compounded over 10 years. Also to take into consideration- most all of the S&P 500 companies are now global companies- in that global current events can affect them, thus there is some international exposure there.

Just curious as that is my stand of US Equity Index funds... thoughts?
Pretty common topic, you should search for it. A few reasons:
Adding about 30% non-US has historically been the sweet spot to minimize volatility in an all-stock retirement fund. Minimizing volatility is important when you need to regularly sell stocks to fund retirement, as volatility can make a portfolio decline even in a generally rising market if it is high enough and you are selling.  It is less important or even beneficial when you are regularly buying.

The US has been doing comparitively well the last 10 and even 30 years, but there have been times in the past and there will be times in the future when the US underperformed other countries for decades. People like to imagine 90% crashes for some reason, but I see extra-US stocks as being useful for a decade period where for example the US stock market gains only 3% compounded annually, but an international index gains 5%. That could really help keep a retiree afloat.

It reduces deep risk, the sort that does not appear in spreadsheets of the recent past. This doesn't have to be something apocalyptic, perhaps the US stupidly engages in trade and currency wars for a while and finds itself stagnating and not having the international trade presence it does now. Anything is possible, and gold and CD's might not be bad to have around either in small amounts.

Oh right.... I expect the US to continue to do very well, and my family, house, and job are here. As long as the US is doing well I will be ok too. But there is always the possibility things won't be like I expect. I see it as being similar to the guideline to not buy stock from the company you work in, because you don't want to lose your job and your money at the same time if it doesn't succeed. I am far more invested in the US than my measly few thousand dollars in index funds, so it is good to diversify.
« Last Edit: May 19, 2016, 12:18:38 AM by Radagast »

k9

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Re: Is 100% VTSAX crazy?
« Reply #26 on: May 19, 2016, 06:41:44 AM »
Does it make sense to include an asset like gold that fluctuates in value, but never has intrinsic growth?   I just don't see how it does.
Might not be your cup of tea, but it does make sense. A very volatile asset that would be inversely correlated with stocks would have a huge benefit in a portfolio, even if it did not provide growth taken in isolation, because rebalancing makes you sell huge benefits in the winning asset and buy cheap portions of the losing asset. This is modern portfolio theory 101.

Unfortunately, there is no such perfectly negatively-correlated asset, yet gold is the closest thing. That's why many (especially PP proponents) include it in their asset allocation.

fattest_foot

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Re: Is 100% VTSAX crazy?
« Reply #27 on: May 19, 2016, 08:26:39 AM »
I don't think VTSAX is crazy. Here is my question... why add so much in international stock funds? Seems that the returns for the last 10 years have been pretty poor, whereas the US second largest financial meltdown seemed to happens 8-9 years ago- and the US equity returns far outpace the international result.

I understand one might say "Well what if the US has a huge collapse and you lose everything at 70..." while this may be true - if it is indeed that bad for a 80-90% drop in the Stock market- we have larger issues. And if that if your fear- why not invest in CDs or Gold or bullets. What makes the international stock market so different?

You also have to consider the opportunity cost in loss of revenue by putting 50% of your portfolio in international that has grew 2% compounded over 10 years. Also to take into consideration- most all of the S&P 500 companies are now global companies- in that global current events can affect them, thus there is some international exposure there.

Just curious as that is my stand of US Equity Index funds... thoughts?

I have the same thinking as you. International just doesn't perform well, however, the US economy is "global" enough for me to get a pseudo international exposure.

I'm kind of baffled at putting 25%+ into international funds to protect against volatility. If you really need a hedge against US equities, bonds seem like a better bet.

I see lots of comments about "historically" international performing better, but I don't think there have been international funds long enough for this to actually be true. It sounds more like "well, if you had bought xxx country, backtested, it performed better." But that seems incredibly disingenuous.
« Last Edit: May 19, 2016, 08:28:18 AM by fattest_foot »

zz_marcello

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Re: Is 100% VTSAX crazy?
« Reply #28 on: May 19, 2016, 09:18:48 AM »
I don't think VTSAX is crazy. Here is my question... why add so much in international stock funds? Seems that the returns for the last 10 years have been pretty poor, whereas the US second largest financial meltdown seemed to happens 8-9 years ago- and the US equity returns far outpace the international result.

I understand one might say "Well what if the US has a huge collapse and you lose everything at 70..." while this may be true - if it is indeed that bad for a 80-90% drop in the Stock market- we have larger issues. And if that if your fear- why not invest in CDs or Gold or bullets. What makes the international stock market so different?

You also have to consider the opportunity cost in loss of revenue by putting 50% of your portfolio in international that has grew 2% compounded over 10 years. Also to take into consideration- most all of the S&P 500 companies are now global companies- in that global current events can affect them, thus there is some international exposure there.

Just curious as that is my stand of US Equity Index funds... thoughts?

I have the same thinking as you. International just doesn't perform well, however, the US economy is "global" enough for me to get a pseudo international exposure.

I'm kind of baffled at putting 25%+ into international funds to protect against volatility. If you really need a hedge against US equities, bonds seem like a better bet.

I see lots of comments about "historically" international performing better, but I don't think there have been international funds long enough for this to actually be true. It sounds more like "well, if you had bought xxx country, backtested, it performed better." But that seems incredibly disingenuous.

Most ex US stock market valuations are currently much lower than US.
Shiller Cape US = 25.5; UK= 12; Singapore=11; Hong Kong 14...
Historically those valuations are much more similar (Average 14-16)

Judging Future US Stock Performance only on the last 10 years is in my opinion a mistake. You are buying one of the currently most overvalued countries.
Thats the same like buying Japan only in 1989 (@shiller cape ~90) because the Nikkei was the strongest world wide index in the 10 year period before.


Dividend yields of Great Britain FTSE100 and Singapore Straits times index are currently each ~4%.
That means you don't need to sell any stocks and just live from the dividends.

When you want to buy the stock market with the worldwide best 10 year performance you have to buy Denmark.
Valuation is unfortunately a Shiller Cape of 37.
Thats probably much like buying the US in 2000...
« Last Edit: May 19, 2016, 09:32:23 AM by zz_marcello »

AdrianC

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Re: Is 100% VTSAX crazy?
« Reply #29 on: May 20, 2016, 08:08:12 AM »
i decided to do the Three fund after reading this huge long thread on it
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005&start=1400

Great thread. I'm about 1/3 way through it. Quite persuasive.

Thanks for posting.

AdrianC

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Re: Is 100% VTSAX crazy?
« Reply #30 on: May 20, 2016, 08:22:50 AM »
Most ex US stock market valuations are currently much lower than US.
Shiller Cape US = 25.5; UK= 12; Singapore=11; Hong Kong 14...
Historically those valuations are much more similar (Average 14-16)

Judging Future US Stock Performance only on the last 10 years is in my opinion a mistake. You are buying one of the currently most overvalued countries.

Indeed.
5 year return
VTSAX 10.99%
VTIAX 0.67%

PE
VTSAX 22.2x
VTIAX 18.6x

These numbers make me more interested in VTIAX.

Plus, if you only have VTSAX you're missing out on some very important companies and industries.

k9

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Re: Is 100% VTSAX crazy?
« Reply #31 on: May 20, 2016, 08:24:06 AM »
Here is my question... why add so much in international stock funds? Seems that the returns for the last 10 years have been pretty poor, whereas the US second largest financial meltdown seemed to happens 8-9 years ago- and the US equity returns far outpace the international result.

I understand one might say "Well what if the US has a huge collapse and you lose everything at 70..." while this may be true - if it is indeed that bad for a 80-90% drop in the Stock market- we have larger issues. And if that if your fear- why not invest in CDs or Gold or bullets. What makes the international stock market so different?

You also have to consider the opportunity cost in loss of revenue by putting 50% of your portfolio in international that has grew 2% compounded over 10 years. Also to take into consideration- most all of the S&P 500 companies are now global companies- in that global current events can affect them, thus there is some international exposure there.

I'm kind of baffled at putting 25%+ into international funds to protect against volatility. If you really need a hedge against US equities, bonds seem like a better bet.
I'm quite surprised by these comments, honestly. Everybody keeps saying "don't try to outsmart the market, don't try to pick winners, nobody can do that, just buy the whole market", yet many seem to fail at applying this reasoning on a more global scale. "Don't try to pick winners, but USA is a winner, so pick it".

"Apple had by far the best growth in the last 20 years, yet it had to face the death of its charismatic founder Steve Jobs, so buy Apple stocks; buying other stocks to diversify is crazy as it would incur a huge opportunity cost".

"Tech stocks had by far the best growth in the last 20 years, yet they had to face the biggest bubble/krach in history, so just buy tech stocks; buying other sectors to diversify is crazy as it would incur a huge opportunity cost".

"USA had by far the best growth in the last 20 years, yet they had to face the biggest stock market krach in the last 70 years, so just buy US stocks ; buying stocks from other countries is crazy as it would incur a huge opportunity cost".

See what I mean ?

Tyler

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Re: Is 100% VTSAX crazy?
« Reply #32 on: May 20, 2016, 10:50:36 AM »
I'm quite surprised by these comments, honestly. Everybody keeps saying "don't try to outsmart the market, don't try to pick winners, nobody can do that, just buy the whole market", yet many seem to fail at applying this reasoning on a more global scale. "Don't try to pick winners, but USA is a winner, so pick it".

Good point.

It's also important to understand that the stock market is just one portion of the global financial market.  One who truly believes in efficient markets and global diversification should consider investing in the Global Market Portfolio.

http://seekingalpha.com/article/3221116-a-better-benchmark-the-global-market-portfolio

Stocks only make up 45% of the world market share.  Just buying 100% VTSAX is not crazy, but it is not buying "the whole market" and simply adding an international fund does not change that.
« Last Edit: May 20, 2016, 11:07:33 AM by Tyler »

brooklynguy

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Re: Is 100% VTSAX crazy?
« Reply #33 on: May 22, 2016, 07:57:49 PM »
I'm quite surprised by these comments, honestly. Everybody keeps saying "don't try to outsmart the market, don't try to pick winners, nobody can do that, just buy the whole market", yet many seem to fail at applying this reasoning on a more global scale. "Don't try to pick winners, but USA is a winner, so pick it".

Good point.

It's also important to understand that the stock market is just one portion of the global financial market.  One who truly believes in efficient markets and global diversification should consider investing in the Global Market Portfolio.

http://seekingalpha.com/article/3221116-a-better-benchmark-the-global-market-portfolio

Stocks only make up 45% of the world market share.  Just buying 100% VTSAX is not crazy, but it is not buying "the whole market" and simply adding an international fund does not change that.

If we assume that a passive investment approach is the best investing strategy within one particular investment market (the U.S. stock market), it does not necessarily follow that a passive approach is the best strategy for the selection of markets in which to invest.  This point was discussed at length in the forum here (among other threads).

The Philosophical Economics article posted earlier today, the latest in a series of thoughtful pieces about indexing, makes the related point that the stock market's efficiency in pricing stocks does not translate into a comparable efficiency of the "global financial market" in pricing entire asset classes:

Quote from: Philosophical Economics
This fact [i.e., that professional investment managers have more control over how cash gets invested in the aggregate than whether cash gets invested in the aggregate] may be the reason for Samuelson’s famous observation that markets are more efficient at the micro-level than at the macro-level.  Micro-level decisions–e.g., decisions about which specific companies in the equity market to own–are more likely to be made by professionals that possess experience and skill in security selection.  In contrast, macro-level decisions–e.g., broader decisions about what basic asset classes to invest in, or whether to be invested in anything at all, i.e., whether to just hold cash, and how much cash to hold–are more likely to be made at the source, by the unsophisticated individuals that send money into and out of the system, individuals that do not have any particular tendency to optimize the timing of those flows.

Tyler

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Re: Is 100% VTSAX crazy?
« Reply #34 on: May 22, 2016, 09:26:24 PM »
If we assume that a passive investment approach is the best investing strategy within one particular investment market (the U.S. stock market), it does not necessarily follow that a passive approach is the best strategy for the selection of markets in which to invest.

Sure -- I agree.  There are many different markets, including options outside of the stock market.  Diversifying markets is IMHO a good idea, but obviously opinions differ on the ideal mix.
« Last Edit: May 22, 2016, 09:32:35 PM by Tyler »

k9

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Re: Is 100% VTSAX crazy?
« Reply #35 on: May 23, 2016, 02:30:29 AM »
Interesting information. Thanks.