The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: mohawkbrah on May 07, 2016, 11:42:34 PM
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Because when i look at global equity funds the returns seem suboptimal compared to a US stock only fund
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Past returns do not predict future returns. And if you don't trust me in saying that, check out the sec.gov website that says the same thing. Or literally any prospectus for a mutual fund, which by law has to include that language.
It's also worth noting that someone who has been investing for years may feel comfortable with 50% international while a new investor won't. For example, your post talks about "suboptimal" so maybe you'd sell international when it has 2 years of worse performance than US stocks. But a veteran investor could hold onto 50% international in that circumstance. So don't adopt other people's percentages - you need to have a percentage that fits your comfort level.
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I'm around 60% Europe, 30% USA and 10% emerging at the moment, but to European is the "local" market
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I'm currently 66 % developed countries (included usa) and 33% switzerland.
I'm looking to move 90% to emerging market.
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I'm about 60% Total US Market (slight Small Cap tilt), 10% US REIT, 20% International Developed, and 10% International Emerging. The rationale for the 70/30 US/Int'l split is similar to Go Curry Cracker, when he discusses his asset allocation at http://www.gocurrycracker.com/2016-gcc-asset-allocation/ (http://www.gocurrycracker.com/2016-gcc-asset-allocation/):
When looking only at equities, 78% is invested in US stocks and 22% invested Internationally.
This is lower than a true market weighting, as US Equities at present comprise ~50% of total global market capitalization. Someday I will write a post about why we aren’t globally weighted, and that post will include phrases such as fees, currency risk, rule of law, shareholder rights, demographics, and immigration.
In the mean time, I like that our portfolio sits at roughly the historical sweet spot balancing volatility and total return.
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The returns for international haven't been as good since 2009. From 2003 to 2007 the opposite was true. The trend tends to switch a lot through history. It is normal and it is why you should own both.
Adding international to a domestic portfolio also lowers volatility thanks to extra diversification. The best spot is normally in the 30-40% international/ 60-70% domestic break down. Any less international and you are lacking diversification. Any more and you start to experience more volatility thanks to international stocks being more volatile.
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Because when i look at global equity funds the returns seem suboptimal compared to a US stock only fund
I'm 70% international and 30% domestic.
- Canada = 30%
- US = 50%
- Int'l Dev = 10%
- Int'l EM = 10%
Halfway down the front page = http://forum.mrmoneymustache.com/investor-alley/anyone-else-getting-tired-of-their-international-allocation/
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I second what Indexer says....I am hoping to capture the different market cycles.
1.
My overall allocation, according to Personal Capital, is as follows. This includes both taxable and tax-advantaged(401K, IRA) accounts.
US stocks 42
Int Stocks 23 (3% emerging)
2.
For just my taxable accounts, I am appx 28%, but my target goal is to go to 50%. The taxable portfolio is geared towards dividend income generation and I want the income to be as diversified as possible...across geographies. All my taxable international investments are via VTMGX (Vanguard Tax Managed International)....mainly developed countries in Europe, Asia and recently Canada.
Hope that helps.
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23% Canada long term bonds
7% Canada short term bonds
25% Canada All Cap
25% US All Cap
17% EAFE All Cap
3% EM All Cap
that way, when the US sub-prime oil lending crisis (or whatever the news of the day is) hits, it only affects a quarter of my holdings. For example, the $CAD crashed last year, and my US and EAFE did fairly well, measured in $CAD. EM is sucking hard now, so it's cheap to buy China! But since they're only a 3% allocation, the wild mood swings of EM don't really affect my bottom line.
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Because when i look at global equity funds the returns seem suboptimal compared to a US stock only fund
International index funds as 20% of the total portfolio, or 25% of the stock portion. I split international 50 /50 between developed and emerging markets (an EM tilt).
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I hold shares in companies that own and operate power production facilities all over the world, including but not limited to the US, Canada, India, Chile, Brazil, and South Africa. I like that geographic split.
I also maintain goodwill and rapport with my moderately wealthy inlaws in Argentina, so if I ever have to run away to there, I'll have aid and comfort, unlike the rest of you. ;)
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My goal is to be 60% domestic (US) and 40% total international. We have the $ in the VTSAX and and currently funneling all weekly contributions into VTIAX until that ratio is reached. As a side benefit (?), whenever people moan about the US stock market being overvalued I can mentally shrug and tell myself that I am buying elsewhere for the moment, but not for that reason at all.
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Because when i look at global equity funds the returns seem suboptimal compared to a US stock only fund
Suboptimal in the past or in the future? Important difference! And if it's been doing poorly lately shouldn't we expect it to do well soon, just from reversion to the mean? Do you prefer to buy high or low..?
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I hold at market weights, which is currently 53/47 US/International
For those of you that hold at fixed weights, if the US market cap ever exceeded your fixed allocation, would you change it? So for example if you hold 60/40 Us/international and the US market cap rose to 70%, would you continue to hold 60/40?
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Quick someone post that picture of all those sectors and their returns over the years.
Just because one particular sector isn't doing well doesn't mean it cannot do well in the future. Don't make that mistake. Diversification isn't about picking all winners, it's about mitigating risks and investing in non-correlated assets, or at least assets which have less correlation.
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Quick someone post that picture of all those sectors and their returns over the years.
Just because one particular sector isn't doing well doesn't mean it cannot do well in the future. Don't make that mistake. Diversification isn't about picking all winners, it's about mitigating risks and investing in non-correlated assets, or at least assets which have less correlation.
(https://investsafely.files.wordpress.com/2014/02/tactical_asset_allocation_class_performance_2013.jpg)
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Quick someone post that picture of all those sectors and their returns over the years.
Just because one particular sector isn't doing well doesn't mean it cannot do well in the future. Don't make that mistake. Diversification isn't about picking all winners, it's about mitigating risks and investing in non-correlated assets, or at least assets which have less correlation.
*snip*
You get a cookie....
in 5-10 business days.
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Quick someone post that picture of all those sectors and their returns over the years.
Just because one particular sector isn't doing well doesn't mean it cannot do well in the future. Don't make that mistake. Diversification isn't about picking all winners, it's about mitigating risks and investing in non-correlated assets, or at least assets which have less correlation.
(https://investsafely.files.wordpress.com/2014/02/tactical_asset_allocation_class_performance_2013.jpg)
thanks, very useful. but as im from the UK that chart is lumping in uk with the international equity i assume. it's just that the EU stock market drags everything down. i don't know whether i should bother with putting some allocation into an EU fund or just stick to UK and US
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Then you don't get the point of the chart.
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It's a bit of a balancing act. I've got almost entirely Aussie holdings, but a bit of international would be a good idea to hedge against any local downturns. Of course, then I'm exposed to the whims of the currency market as well as the international share markets, so probably not a good idea to overcommit to international equities :)
I'd get franking credits on any Australian dividends, but I'm not sure about international ones.
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20 - Canadian
20 - US
20 - International
40 - Mix of bonds
I've wondered if it would make more sense to lower the Canadian side and increase the international and US mix.
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US based investor
looking at equity only (80% of my portfolio, the rest are bonds), allocations as follows
- non-US , 30% of total , 37% of equity portfolio (30/0.8)
-- 20% developed countries excluding US index
-- 10% emerging markets index
- US 40 % of total , 50% of equity portfolio
-- 25 % US large cap
-- 15 % diversifiers, small cap value and mid cap indexes
- REIT 10%
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Quick someone post that picture of all those sectors and their returns over the years.
Just because one particular sector isn't doing well doesn't mean it cannot do well in the future. Don't make that mistake. Diversification isn't about picking all winners, it's about mitigating risks and investing in non-correlated assets, or at least assets which have less correlation.
thanks, very useful. but as im from the UK that chart is lumping in uk with the international equity i assume. it's just that the EU stock market drags everything down. i don't know whether i should bother with putting some allocation into an EU fund or just stick to UK and US
So you took the opposite lesson from the chart? I mean if you want to buy high rather than low sure go ahead..
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Quick someone post that picture of all those sectors and their returns over the years.
Just because one particular sector isn't doing well doesn't mean it cannot do well in the future. Don't make that mistake. Diversification isn't about picking all winners, it's about mitigating risks and investing in non-correlated assets, or at least assets which have less correlation.
thanks, very useful. but as im from the UK that chart is lumping in uk with the international equity i assume. it's just that the EU stock market drags everything down. i don't know whether i should bother with putting some allocation into an EU fund or just stick to UK and US
So you took the opposite lesson from the chart? I mean if you want to buy high rather than low sure go ahead..
it's not that im afraid of buying low or anything like that but a portfolio without EU funds in seems to do (marginally better) than with, as far back as i can see through historical data that i can find. obviously the whole history does not represent the future thing comes into play but it's all i've got to work with.
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Are you still thinking that you might RE to a country within the Eurozone -think you mentioned Ireland & E. Europe as possibilities? In which case, having your future income in dollars & pounds and your expenses in Euros might expose you to some currency risk?
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This seems like a perennially recurring topic.
If you believe in investing in index funds, why not expand the idea out to the whole world? You can weight countries by market cap, too. Add the rest of the world to your diversification so you're not putting all your chips on one country. The market will allocate risk for you, since unless you're doing as much homework as Warren Buffett does, you're less efficient than the market. This is what VTWSX does. I just mimic it with VTIAX and VTSAX since they have lower expense ratios. That brings you to a 53/47 split US/non-US at the moment. 50/50 is close enough, barring a major shift one way or the other.
Even if you don't believe in indexing, don't you want to buy low sell high? If US stocks have done well over the past few years and non-US stocks haven't, there's a good chance that that just means non-US stocks are on sale while US stocks have just gotten overly expensive. (You will have to do the math).
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Quick someone post that picture of all those sectors and their returns over the years.
Just because one particular sector isn't doing well doesn't mean it cannot do well in the future. Don't make that mistake. Diversification isn't about picking all winners, it's about mitigating risks and investing in non-correlated assets, or at least assets which have less correlation.
thanks, very useful. but as im from the UK that chart is lumping in uk with the international equity i assume. it's just that the EU stock market drags everything down. i don't know whether i should bother with putting some allocation into an EU fund or just stick to UK and US
So you took the opposite lesson from the chart? I mean if you want to buy high rather than low sure go ahead..
it's not that im afraid of buying low or anything like that but a portfolio without EU funds in seems to do (marginally better) than with, as far back as i can see through historical data that i can find. obviously the whole history does not represent the future thing comes into play but it's all i've got to work with.
Then you should throw a decent chunk, or all, of your portfolio into small cap value. As that has showed the best return for many-many decades. Personally I'm skeptical of such historical matching/assumed-repetition so I don't do this, but some swear by it.
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Quick someone post that picture of all those sectors and their returns over the years.
Just because one particular sector isn't doing well doesn't mean it cannot do well in the future. Don't make that mistake. Diversification isn't about picking all winners, it's about mitigating risks and investing in non-correlated assets, or at least assets which have less correlation.
thanks, very useful. but as im from the UK that chart is lumping in uk with the international equity i assume. it's just that the EU stock market drags everything down. i don't know whether i should bother with putting some allocation into an EU fund or just stick to UK and US
So you took the opposite lesson from the chart? I mean if you want to buy high rather than low sure go ahead..
it's not that im afraid of buying low or anything like that but a portfolio without EU funds in seems to do (marginally better) than with, as far back as i can see through historical data that i can find. obviously the whole history does not represent the future thing comes into play but it's all i've got to work with.
Are you considering dividends? People seem to forget to adjust for that.