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Old 10-14-2011, 02:28 PM   #21
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Originally Posted by Texas Proud View Post
Because a bond pays interest... the change in price for an international bond fund is the change in interest rates and the exchange rate... I don't see the benefit of looking for a bit more yield when it can be overcome many times over by the exchange rate..

International stocks can increase in price because they become more valuable... the business is growing etc. etc.... and the exchange rate risk is not as large...
.........

Now, if you want to play the game of 'is the dollar going to tank' or 'is the dollar going through the roof', then international bond funds are the way to go...
If I'm interpreting your reasoning correctly, you're essentially viewing the "exchange rate risk" as a negative thing, all other "risks" being equal since this is essentially the only difference between a domestic bond which you advocate over a collection of foreign bonds.

If you ask me, "exchange rate risk" is mostly a misnomer, especially where long-term investing is concerned. Over a long period of time, the see-saw of various currencies (including our own) would be expected to balance out. But I think it's actually more of a misnomer because you're implying, or actually suggesting, its safer to have as much of your money as possible in the current of one country - (the U.S, in your case) - than it would be to have it in the currencies of many countries, such as in an International Bond fund.

In short, i see that "risk" as a null at worst, and as an advantage, at best.

Now foreign taxes - there's a real loss that sometimes isn't recouped/reinbursed, if similar taxes are levied again here after the exchange.
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Old 10-14-2011, 02:34 PM   #22
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The research I have read (in the past) suggests that a 10% or so unhedged foreign bond allocation does indeed move you closer to the efficient frontier.

I have been doing a bit of quick reading and have graphed the two funds you posted compared to VFICX.... and compared it with the change in the US$...

With BEGBX, it looks like it is most the dollar change that makes it different than the US fund... but, it is not quite keeping up with the US fund (probably because of cost, but I did not check out the difference in cost)....

Now, GIM varies wildly from VFIXC.... not sure why... but it does not look good the last 200 days... but over 10 years it is great...
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Old 10-14-2011, 02:45 PM   #23
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I have been doing a bit of quick reading and have graphed the two funds you posted compared to VFICX.... and compared it with the change in the US$...

With BEGBX, it looks like it is most the dollar change that makes it different than the US fund... but, it is not quite keeping up with the US fund (probably because of cost, but I did not check out the difference in cost)....

Now, GIM varies wildly from VFIXC.... not sure why... but it does not look good the last 200 days... but over 10 years it is great...
BEGBX is pretty plain vanilla and they mostly stick to higher credit ratings and play duration games vs. their index. GIM trafficks mostly in currency and credit games vs. the index. But evaluating these things vs. a single fund is disingenuous. You really need to look at it as part of a diversified portfolio. Since human beings aren't good at eyeballing that stuff, most researchers who study this stuff resort to mathematical models and historical performance quantitative evaluations.
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Old 10-14-2011, 04:47 PM   #24
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If I'm interpreting your reasoning correctly, you're essentially viewing the "exchange rate risk" as a negative thing, all other "risks" being equal since this is essentially the only difference between a domestic bond which you advocate over a collection of foreign bonds.

If you ask me, "exchange rate risk" is mostly a misnomer, especially where long-term investing is concerned. Over a long period of time, the see-saw of various currencies (including our own) would be expected to balance out. But I think it's actually more of a misnomer because you're implying, or actually suggesting, its safer to have as much of your money as possible in the current of one country - (the U.S, in your case) - than it would be to have it in the currencies of many countries, such as in an International Bond fund.

In short, i see that "risk" as a null at worst, and as an advantage, at best.

Now foreign taxes - there's a real loss that sometimes isn't recouped/reinbursed, if similar taxes are levied again here after the exchange.
As Brewer noted, it is not that great using the 'eyeball method'.... but from the little eyeballing I did, it looks like the US dollar is down 20% over the last 10 years...

But I will disagree with you on the exchange rate balancing out... I remember when I was young the British Pound vs US dollar was 5 to 1... when I lived in the UK, it was 1.4 to 1 and I think went down to 1.3ish to 1... a few years later it was 1.8 to 2.0 to 1 and is not going back down..


My main point is that I want to invest in an asset that I hope will grow and that I can use in the future.... since I have my expenses in US dollars, then it is US dollars that I will spend and it is US dollars that I want to grow...

Investing in foreign bonds can make me more money in US dollars... but not much more, and probably less, if we assume that there is no exchange rate risk... the premiss is that a higher interest rate in a foreign land is compensation for the risk of that currency being devalued over time...

So if we are talking country debt, then you have to price in the difference between the safety of the US debt vs the other countries debt... the yield on Greek debt looks very good right now.... but I would not want to touch it...

And I would say the same thing for corporate debt... if it is a strong European company, then the yield on their Euro debt is probably the same as if they had US$ debt... so the only benefit of buying their Euro debt is the potential for an exchange rate change...

If you want an exchange rate investment (ie, betting that the dollar will go one way or the other), then I agree that it is the way to go...


Now, I will try and find a few articles on this and see if there is something that gives some real numbers behind it... I will be looking to see if you invest in foreign bonds and take out the difference in default risk that you are better off than just plain US debt... from the few quick articles that I read today, they seem to say 'no, there is not a benefit' after taking into account the risk and expense cost of the fund... but these are just people like me spouting off.... not backed by math that I could see...
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Old 10-14-2011, 05:39 PM   #25
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80% equities is high, even at a young age, and half that in US large cap is a pretty high concentration in one asset class.

1/5 of equities allocated to international is low. I would say at least 1/3, and at least half that to emerging markets.

Agree with Brewer about the int'l fund diversification value and the funds he named. GIM is a closed end fund and a bit more volatile. Part of the int'l bond could be in emerging market - for example, Fidelity (FNMIX0 and PIMCO (PELBX).
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Old 10-14-2011, 09:16 PM   #26
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80% equities is high, even at a young age, and half that in US large cap is a pretty high concentration in one asset class.

1/5 of equities allocated to international is low. I would say at least 1/3, and at least half that to emerging markets.

Agree with Brewer about the int'l fund diversification value and the funds he named. GIM is a closed end fund and a bit more volatile. Part of the int'l bond could be in emerging market - for example, Fidelity (FNMIX0 and PIMCO (PELBX).
Lots of AA can work if you can sleep at night. I've been retired 12+ years. My AA has fluctuated from a low of 65% equities in 2000 to high of 85% earlier this year to 80% today. My large cap allocation is very similarly to the OPs 43% and my international is down to 10%. Since you aren't retired and fixed income is generating a negative real return right now (especially after taxes) I won't be in any hurry to shift out of equities if you are ok with the volatility. To be honest I am curious to see how people who are heavily into fixed income handle the volatility of higher interests. Although I have officially stop speculating when they will occur other than my lifetime (I hope)


I am looking at shifting into some international bonds and was debating between GIM and the M* recommend CEF MSD which at 10+% discount to NAV.
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Old 10-17-2011, 12:57 PM   #27
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I use T. Rowe Price Advisory Planning Services for my retirement asset allocation. I am 41, I hope to retire anywhere within the next 4 to 9 years if possible. The recommended asset allocation plan is premised on me working until 65, but I was told that even if I want to retire early, the asset allocation would not change too much, because the early retirement would mean I would need my investments to last for a longer period of time, and I would need to take on more risk (stocks) to help make my retirement assets last as long as I do.
Without knowing your income requirements, retirement capital and other sources of income (like penions and SS) I don't see how an advisor can make a recommendation. You might be frugal and have a few million invested so that you could live well on the returns from a bond heavy portfolio for 40 years. You might not need the growth and risk potential of equities.

Most financial advisers will assume you want to have 80% of your pre retirement income but many on this forum use far smaller percentages because they don't have the big costs of mortgages and having to save for retirement. I wouldn't go into ER if I needed the growth and risk of an equity heavy portfolio, I'd wait until I could succeed with a Bogle type portfolio where the percentage in good quality intermediate bonds is my age. So could you ER with between 40 or 50% bonds?
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Old 11-05-2011, 05:12 PM   #28
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Does this seem like a reasonable AA to you knowledgable folks out there?

ER'ed at 55 early this year (now 56). Here is a summary of my ~750K AA as of yesterday (I skip the details to keep the post short). 50% bonds (various, mostly intermediate, some older I Bonds), 34% stock funds (mix of large, mid, foriegn...), 7% Gold Bullion (coins in sd box), 9% cash (yeah, I know a litlle high). Does this seem reasonable? For now most of my living expenses are covered by a non-inflation adjusted pension,,,which drops by abot 15% when I turn 62 (as well as the inflation eater). It just doesn't seem like I have had a huge return YTD (a few percent), of course August was a killer. (BTW, I don't use a financial adviser or wanna become a day trader)

Thanks
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Old 11-05-2011, 06:25 PM   #29
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Does this seem like a reasonable AA to you knowledgable folks out there?

ER'ed at 55 early this year (now 56). Here is a summary of my ~750K AA as of yesterday (I skip the details to keep the post short). 50% bonds (various, mostly intermediate, some older I Bonds), 34% stock funds (mix of large, mid, foriegn...), 7% Gold Bullion (coins in sd box), 9% cash (yeah, I know a litlle high). Does this seem reasonable? For now most of my living expenses are covered by a non-inflation adjusted pension,,,which drops by abot 15% when I turn 62 (as well as the inflation eater). It just doesn't seem like I have had a huge return YTD (a few percent), of course August was a killer. (BTW, I don't use a financial adviser or wanna become a day trader)

Thanks
Seems reasonable to me as far as diversification goes. You may want to consider some REITs in there somewhere (maybe 5%??). You could also consider some short or ultra-short term bonds in lieu of some of the cash for a bit better yield. How much do you expect to draw from this portfolio though? Under 4%?
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Old 11-05-2011, 08:00 PM   #30
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Does this seem like a reasonable AA to you knowledgable folks out there?

ER'ed at 55 early this year (now 56). Here is a summary of my ~750K AA as of yesterday (I skip the details to keep the post short). 50% bonds (various, mostly intermediate, some older I Bonds), 34% stock funds (mix of large, mid, foriegn...), 7% Gold Bullion (coins in sd box), 9% cash (yeah, I know a litlle high). Does this seem reasonable? For now most of my living expenses are covered by a non-inflation adjusted pension,,,which drops by abot 15% when I turn 62 (as well as the inflation eater). It just doesn't seem like I have had a huge return YTD (a few percent), of course August was a killer. (BTW, I don't use a financial adviser or wanna become a day trader)

Thanks
Your situation is very similar to mine. Most of my expenses will be covered by a combo of pensions, SS and rental income so I don't need to take much form my retirement savings. So you can argue for AA across the risk spectrum. Either you don't need the income so go with a bond heavy AA to minimize risk, or you don't need the income so go with a riskier stock heavy AA as you can weather losses in the portfolio.

IMHO a 50/50 portfolio with a couple of years in cash and short term bonds and a total return approach is the best way to go in our situation.
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Old 11-06-2011, 08:40 AM   #31
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Thanks nun and panacea for the feedback and good suggestions . As far as returns go, I tend to go conservative using firecalc, orp, ect., and assume use overall return rates and inflation rates that are about the same. Of course I play around with the numbers like everyone else does I'm sure and use return rates somewhat lower than CPI just to see where things will head. The only killer for me would be a long term high inflation period (10% or so), don't have the specifics hand because I',m not at my home computer right now. Will definitively check into the REITs.
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