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Foreign Bonds Anyone?
Old 03-19-2008, 09:34 PM   #1
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Foreign Bonds Anyone?

With real estate in the dumps, stocks sinking, and domestic bonds/CD paying so little, I was wondering if anyone has any advice on getting into the foreign bond/CD markets. Iceland pays crazy high returns on CD's. Ditto New Zealand. Warren Buffett apparently won't deal in dollars, but only in Euro's. How does the simple man follow Uncle Warren's advice?
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Old 03-19-2008, 09:59 PM   #2
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For foreign currency CDs, you can try Everbank. For bonds denominated in foreign currencies you can try a number of mutual funds such as BEGBX or, the one I own, LSGLX. Make sure it is unhedged if you want to be able to capture the upside of a dollar meltdown. But I think you should ask yourself if, with the dollar at a all time low Vs. many currencies, now is the time to invest in such an asset. Many pessimists would say yes (in order to protect your wealth against a collapse of the dollar), some would say no...
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Old 03-19-2008, 10:06 PM   #3
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I use LSGLX too, just bought some more on Monday
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Old 03-19-2008, 10:10 PM   #4
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But I think you should ask yourself if, with the dollar at a all time low Vs. many currencies, now is the time to invest in such an asset. Many pessimists would say yes (in order to protect your wealth against a collapse of the dollar), some would say no...
This is something I've been wondering about. I've been hearing various people (the very pessimistic ones anyway) talk about things like converting their 401k to Euros, things like that. However, that strikes me as incredibly dumb (unless, as you mentioned, they believe the dollar is on the brink of collapse). Assuming the dollar doesn't collapse, aren't you just locking in your losses? In other words, buying high and selling low?

Granted, most of the people I come across advocating this, I wouldn't trust to take out my garbage, let alone give me financial advice. Still though, just curious about it.
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Old 03-19-2008, 10:40 PM   #5
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Exchange rate risk in any investment in foreign denominations.

Forex adventure is a game for experts.
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Old 03-20-2008, 03:48 AM   #6
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Too bad VG does not have a foreign bond fund (high quality).
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Old 03-20-2008, 10:52 AM   #7
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Old 03-20-2008, 10:56 AM   #8
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Stop chasing new funds, guys! If you don't have something in your AA you should think real hard before adding it - because it generally looks appealing after it had a huge run. Think about it

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Old 03-20-2008, 11:24 AM   #9
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Too bad VG does not have a foreign bond fund (high quality).
I agree, my stocks are balanced with foreign, but I have to go outside V to get the same balance in bondsshredder
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Old 03-20-2008, 12:09 PM   #10
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The counter example comes from David Swensen at Yale who says for foreign exposure own equity than bonds because the ER on those are low compared to the bond funds. You might be able to get similar performance of foreign bonds by splitting the AA of foreign bonds between foreign equity and domestic bonds all with a lower ER. Something to think about - though I should see if I can simulate this

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Old 03-20-2008, 12:31 PM   #11
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I'm a current owner of BEGBX. Does this thread mean it's time for me to sell?
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Old 03-20-2008, 05:33 PM   #12
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Quote:
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Exchange rate risk in any investment in foreign denominations.

Forex adventure is a game for experts.
Whooo I signed up last summer and started trading in their simulated practice account. First couple trades the money was fast and easy. I went away for a few days and was buried into negative territory. Sure was glad I learned that lesson with pretend money.
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Old 03-20-2008, 05:50 PM   #13
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Too bad VG does not have a foreign bond fund (high quality).
Perhaps for good reason.
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Old 03-21-2008, 07:57 AM   #14
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Perhaps for good reason.
And those reasons would be?
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Old 03-21-2008, 11:23 AM   #15
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Couple reasons.

1) High cost. VG's domestic bond funds are pretty cheap, coming in about 0.2% ER. Most foreign bond funds have a considerably (3-4x) higher expense.

2) Bonds serve as an anchor to a portfolio by virtue of their low correlations to equities. Foreign bonds do not offer much 'extra' in this regard, and when viewed in this light there is no reason to include them at their much higher expense.

3) You can get foreign currency exposure by holding foreign equities. Expense ratio of foreign equity funds are generally lower than foreign bond funds.. so if you need more exposure, buy more foreign equities. Its cheaper and accomplishes the same task.

Add those up, and you'll see why foreign bonds are not necessary. I can't speak for VG, but I'd speculate that there would be relatively low demand and higher expenses to run the fund.
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Old 03-21-2008, 01:50 PM   #16
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I also have BEGBX and took took some profits and rebalanced earlier this week. IMO the $ is resting but will continue its decline if the FED keeps cutting rates. Then again how much lower can rates go?

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Old 03-22-2008, 09:51 AM   #17
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3) You can get foreign currency exposure by holding foreign equities. Expense ratio of foreign equity funds are generally lower than foreign bond funds.. so if you need more exposure, buy more foreign equities. Its cheaper and accomplishes the same task.
But most foreign equity funds are currency hedged, so you don't get the FX exposure you would from holding foreign stocks directly.
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Old 03-22-2008, 10:03 AM   #18
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But most foreign equity funds are currency hedged, so you don't get the FX exposure you would from holding foreign stocks directly.
no - very few foreign equity funds are currency hedged. Tweedy is one of the few that is.

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Old 04-02-2008, 02:19 PM   #19
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I sold my stake in BEGBX on Monday. Viva la dollar!
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Old 04-02-2008, 09:03 PM   #20
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I sold my stake in BEGBX on Monday. Viva la dollar!
I was wondering about buying this fund. It was recommended by Brewer some time ago and I liked it but will not get control over my 401K fund for about another month. I guess the best time to buy this fund has passed.
Now I have to figure out what to add to my AA or just keep with my Target Retirement fund.
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