Is it time to invest in Europe?

[Bugcop]

I’ve got an international investment question for the Mustachian community, but first a little background:

I have about 120K in retirement accounts and am 12 years out from retirement.  About 85% in VTSAX (Vanguard Total Stock market) and 15% Bond funds.  I like the simple and cheap index investing approach that is promoted by MMM, Bogleheads and JL Collins.
 
With the dollar running strong against the Euro and Europe –maybe – at its economic bottom, would it be wise to move 10K from the US index into a Vanguard European index fund?  My thinking is the strong dollar might allow buying European index at a favorable price point.  I am assuming Europe will not implode and the exchange ratio will return to "normal" (1 Euro = 1 1/4 dollars to 1 1/2 dollars) within 5 years.  Alternatively: I can assume nothing and just stay put with my simple allocation :-)

Thank you for your perspectives!

[seattlecyclone]

What does your preferred asset allocation say? Do you think 100% US is appropriate for your long-term portfolio? If not, buy some international stocks! Don't worry about whether the market is at a bottom, top, or middle. That's what we like to call "timing the market," and it's a fool's errand.

[GoldenNeko]

As a French person, I sure do hope Europe won't implode ^^)

I have 50%S&P and 50% Vanguard European ETF in my portfolio. The cost is a bit higher than the American Vanguard, but still very cheap.
BTW, my reasoning is the opposite, since I'm the other side of the ocean, I invest as much as I can in USD as long as USD are cheaper than euro.

Finally, mind your converting costs. But 10 k seem very reasonable.

[forummm]

It's always time to invest in Europe. And the US. And everywhere else. No matter what you think the market may be doing, it's always a good time to invest. Don't try to time the market because you won't be good at it.

[CorpRaider]

A)  This is in the wrong sub-forum.  Someone quickly draw and quarter this poster.  B)  The CAPE for many/most European markets would say yes.  Maybe consider just a smidge up your weighting if you don't want to offend the Boglegods and have to tell them to "go Fama yourself".

[Seppia]

Let's put it this way: if you feel like you need more exposure to European markets, the historically cheap euro makes it a pretty good moment to start.

I also am a believer of not trying to time the market, but when historical deviations from normal prices happen*, well, I allow myself a little flexibility.

*the euro now is a good example of something being historically cheap, the energy sector too

[Chris22]

I am assuming...the exchange ratio will return to "normal" (1 Euro = 1 1/4 dollars to 1 1/2 dollars) within 5 years.

On what do you base this assumption?  I don't think Europe will "implode" but I don't see the Euro appreciating against the dollar any time soon. 

[Seppia]

Euro has not been this low since 2003.
I think it's reasonably safe to hope it will  be in better shape than now sometime in the next twelve years.

[beltim]

You've pretty got the perfect range of responses so far, but for some reason I feel compelled to summarize and add my 2 cents.

1) In general, you shouldn't be using short-term events to change long term planning.  If you want international exposure in your portfolio, the best time to buy is now, because you can't predict the future.
2) By some metrics (e.g. CAPE), European markets are pretty cheap right now.
2a) CAPE is one of the few metrics that actually is predictive of long term (10 year) returns.
3) The Euro is pretty weak right now, so in theory you get more for your money.
3a) There's no reason that currencies need to "get back" to a previous level.  There is a long history of some currencies being weaker or stronger (e.g. Swiss Franc) over very long time periods, and it's generally not a good idea to assume reversion to the mean.

So, in conclusion: if you think having some European exposure in your portfolio is a good long-term move, then yes, now seems like a good time to buy.  If you're only interested in short-term trading because of the fall of the Euro, then you're more likely to get burnt than to profit.

[Seppia]

If you're only interested in short-term trading because of the fall of the Euro, then you're more likely to get burnt than to profit.

Great post
Let me just add to this last part that people that trade with short term horizons tend to get burnt more often in general, it's not a euro specific thing.

[Bob W]

Don't know anything about it other than China's market is in the shitter.   Could that spill over to Europe?  Possibly?   So you may want to wait until summer draws to a close as traditionally summer markets are weak anyhow. 

See how you feel in September.   No rush as you are a long term investor I'm sure. 

[Bugcop]

Thank you everyone.  Yes, I see I am trying to time the market AND I am terrible at it!  With your perspective, I see such a move as diversification into developed markets and the timing is irrelevant.  I will be best served by continuing to add to the stash regularly and not attempting to "swing for the fences" with market timing ideas!  Thank you all for keeping me humble and on track!  Cheers

[Chris22]

Euro has not been this low since 2003.
I think it's reasonably safe to hope it will  be in better shape than now sometime in the next twelve years.

Hope?  Sure, knock yourself out.  Plan?  I have not seen anything to suggest the region will be financially better in the short/medium term.  Investment (not buying stocks, corporate investment) there is hyper-expensive and even more expensive to unwind.  They do not have significant natural resources and those they do have they are politically loathe to capitalize on.  The only population growth is through the immigration of the extremely poor.  Many of the western countries are outsourcing to the cheaper eastern bloc countries.  Add in growing troubles with the so-called "PIGS" and I see nothing to suggest a bounce back of their currency on the horizon.

[nobodyspecial]

The same thing could be said about regions of the USA, but the SP500 seems to be doing OK

[Seppia]

Euro has not been this low since 2003.
I think it's reasonably safe to hope it will  be in better shape than now sometime in the next twelve years.

Hope?  Sure, knock yourself out.  Plan?  I have not seen anything to suggest the region will be financially better in the short/medium term.  Investment (not buying stocks, corporate investment) there is hyper-expensive and even more expensive to unwind.  They do not have significant natural resources and those they do have they are politically loathe to capitalize on.  The only population growth is through the immigration of the extremely poor.  Many of the western countries are outsourcing to the cheaper eastern bloc countries.  Add in growing troubles with the so-called "PIGS" and I see nothing to suggest a bounce back of their currency on the horizon.

This has been the case for a while, none of the facts you state about Europe are recent news.
Plus, somehow Europe managed to stay relevant for a little while (as in: thousands of years), as much as I see your angle I'm not ready to see it as a risky investment for the long run.

I am really surprised at the investment fundamentalism I am finding on this forum.
There is a very wide array of options in between "furiously active leveraged day trading" and "oh wow, the energy sector is at a ten years low, maybe I could go very slightly overweight on this sector for a few months by allocating 10% of my monthly investments to VGENX".

Technically, even trying to up your monthly contribution during the 2008-09 crisis is "timing the market"