Vanguard Index Fund Asset Allocation; International vs US; rebalancing

[YoungStache]

Hey guys, I was just wondering what your thoughts were about my Vanguard Index fund asset allocation. I am wondering what you guys do for your index fund portfolios, and if rebalancing would be a good idea. My asset allocation is below:


VTSAX: 61.8%

VTIAX: 38.2 %

[CoffeeR]

There is no right answer. Answers tend to fluctuate between 45% international to 0%. The 45% comes from the fact that currently about 55% of the world stock market capitalization is US. You'll have to do some reading and research and determine your own believes, values and judgment in this matter. If you cannot decide or are not sure, then I personally would go with 20% international. This is what Vanguard used to recommend. Then they went to 30% and I think they are now at 40%. The 20% comes from a number of sources that say you should not have more than 20% in international and other that say you should not have less than 20%.

If in your IPS  you have determined you want to go with (say) 40% international, then other sources and research suggest you should not be aggressive in rebalancing. Maybe wait until the larger percentages of your allocation are 5% off the target. So, in that case, rebalance when international is at 35%.

[YoungStache]

There is no right answer. Answers tend to fluctuate between 45% international to 0%. The 45% comes from the fact that currently about 55% of the world stock market capitalization is US. You'll have to do some reading and research and determine your own believes, values and judgment in this matter. If you cannot decide or are not sure, then I personally would go with 20% international. This is what Vanguard used to recommend. Then they went to 30% and I think they are now at 40%. The 20% comes from a number of sources that say you should not have more than 20% in international and other that say you should not have less than 20%.

If in your ISP you have determined you want to go with (say) 40% international, then other sources and research suggest you should not be aggressive in rebalancing. Maybe wait until the larger percentages of your allocation are 5% off the target. So, in that case, rebalance when international is at 35%.

I see. I thought VTSAX was naturally diversified globally, so maybe I will just go with a higher US asset allocation. At this point my VTIAX is in a taxable brokerage account, so I can't really rebalance from international to US. Plus international has been underperforming compared to US. I will just purchase more VTSAX the next time I invest.

[Andy R]

Plus international has been underperforming compared to US. I will just purchase more VTSAX the next time I invest.

So you want to buy more of the asset class that is over priced vs its long running average where over the coming years as prices return to their mean, you will earn a lower than average return, instead of buying the recent under performing asset class where over the coming years as prices return to their mean, you earn higher than average returns as it plays catch up?

[YoungStache]

Plus international has been underperforming compared to US. I will just purchase more VTSAX the next time I invest.

So you want to buy more of the asset class that is over priced vs its long running average where over the coming years as prices return to their mean, you will earn a lower than average return, instead of buying the recent under performing asset class where over the coming years as prices return to their mean, you earn higher than average returns as it plays catch up?

Good point. It just sucks that my VTIAX is in my taxable account, so if I trade to VTSAX it will trigger capital gains :(

[terran]

Seems like that's within the bounds of reasonable. Vanguard target date funds are 60/40 US/International. Fidelity's are 70/30. I split the difference and shoot for 65/35, but I wouldn't both rebalancing your allocation except by putting more/less new money to one or the other depending on your chosen target allocation.

[HBFIRE]

I just stick with the stock allocation that Vanguard uses in its LifeStrategy Growth fund.   Currently that's at 60/40 US/Int. 

[chasesfish]

There's no right answer, especially when one is up and one is down.  I keep buying at my original asset allocation plan and then review my portfolio 3-4 times per year and figure out what I want to buy/sell.

Its tough sticking to your allocation plan when one goes way up and one goes way down.  Write down your allocation, remember why you picked that, and when one gets down, ask yourself is it worth rebalancing into your original allocation because the side that's down is at a discount.

I disclose allocation quarterly, it was tough sticking with my REIT allocation when the sector went into the tank from mid-2017 to February of 2018

[Telecaster]

Good point. It just sucks that my VTIAX is in my taxable account, so if I trade to VTSAX it will trigger capital gains :(

Go with your plan A.  Just buy more VTSAX.  The tax hit will wipe out any possible investing advantage.