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?
Foreign Bonds Anyone?
- Thread starter Jeff55
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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...
Darryl
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I use LSGLX too, just bought some more on Monday
CompoundInterestFan
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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.
barbarus
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Exchange rate risk in any investment in foreign denominations.
Forex adventure is a game for experts.
Forex adventure is a game for experts.
sailor
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I'm using GIM
I agree, my stocks are balanced with foreign, but I have to go outside V to get the same balance in bonds
shredderThe 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
-h
-h
Darryl
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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.
And those reasons would be?
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.
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.
2soon2tell
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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?
2soon
2soon
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.
-h
yakers
Thinks s/he gets paid by the post
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.
So, just curious, for those of you that do use a foreign bond fund, what % of your bond allocation is the foreign fund? I think I'm going with the following plan for my bond allocation in my 401(k):
15% ESICX, ER 0.74%
35% PTTRX, ER 0.43%
50% VBTLX proxy, ER 0.10%
ESICX is the Evergreen International Bond Fund Institutional Class
PTTRX is PIMCO Total Return Institutional Class
VBTLX proxy is BGI US Debt Index Fund
So my bond allocation is:
50% indexed at rock-bottom cost (keeps Bogle happy)
35% invested by the "superstar" (Bill Gross) for a reasonable fee
15% world bond exposure for not too outlandish a cost
15% ESICX, ER 0.74%
35% PTTRX, ER 0.43%
50% VBTLX proxy, ER 0.10%
ESICX is the Evergreen International Bond Fund Institutional Class
PTTRX is PIMCO Total Return Institutional Class
VBTLX proxy is BGI US Debt Index Fund
So my bond allocation is:
50% indexed at rock-bottom cost (keeps Bogle happy)
35% invested by the "superstar" (Bill Gross) for a reasonable fee
15% world bond exposure for not too outlandish a cost
Before you do this be sure you understand and are comfortable with the role of bonds in your portfolio. I'm of the school of thought that bonds serve as an 'anchor' to the portfolio to reduce volatility and to provide rebalancing opportunities.
When I view foreign bonds through that lens, I see risk more similar to equities without the substantial reward, at higher cost. As a previous poster suggested, you may do better investing in foreign equities for that portion at lower cost and keeping your bond allocation safer.
For me, I believe in coupling safe bonds with risky stocks - so my bond allocation consists entirely of Intermediate US treas bonds and TIPS. I arrived at that decision by looking at correlations data - when equities are at their worst, I want bonds to be propping up the portfolio.
When I view foreign bonds through that lens, I see risk more similar to equities without the substantial reward, at higher cost. As a previous poster suggested, you may do better investing in foreign equities for that portion at lower cost and keeping your bond allocation safer.
For me, I believe in coupling safe bonds with risky stocks - so my bond allocation consists entirely of Intermediate US treas bonds and TIPS. I arrived at that decision by looking at correlations data - when equities are at their worst, I want bonds to be propping up the portfolio.
jIMOh
Thinks s/he gets paid by the post
So, just curious, for those of you that do use a foreign bond fund, what % of your bond allocation is the foreign fund? I think I'm going with the following plan for my bond allocation in my 401(k):
15% ESICX, ER 0.74%
35% PTTRX, ER 0.43%
50% VBTLX proxy, ER 0.10%
ESICX is the Evergreen International Bond Fund Institutional Class
PTTRX is PIMCO Total Return Institutional Class
VBTLX proxy is BGI US Debt Index Fund
So my bond allocation is:
50% indexed at rock-bottom cost (keeps Bogle happy)
35% invested by the "superstar" (Bill Gross) for a reasonable fee
15% world bond exposure for not too outlandish a cost
15% of my bond position is foreign. This is because my fund of choice is 15% foreign bonds.
I have one bond fund- RPSIX- which is T Rowe Price Spectrum Income. it yields 4%+, has a long term return of 7.5% (over last 5 years) and is a diversified bond fund (fund of funds). About 15% equity and 85% bonds, so asset allocation purists might need to adjust somewhat to get the diversification desired.
15% of fund is in dividend paying stocks
15% of fund is in foreign bonds (12% int'l bond and 3% in emerging markets bond)
57% is domestic bonds and money markets (mix of about 5 different bond funds ranging from 5% to 16% positions)
13% is in RE bonds
I wouldn't suggest that unhedged foreign bonds should replace the low-risk US bonds that are a critical part of your portfolio - int'l bonds are definitely more risky. But you also have to consider the fact that currencies are relatively uncorrelated with either US stocks or US bonds. So yes, they bring some risk to the party, but adding non-correlated risky assets to the portfolio brings down the overall level of risk, often without reducing your return much, if at all.
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