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Vanguard to Increase International Piece of the Pie
Old 09-27-2010, 05:12 PM   #1
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Vanguard to Increase International Piece of the Pie

I find it interesting that VG is upping the international slice of these FOF by 50%. Bogle always has said that 20% international should be the correct max allocation. Things are changing.


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Vanguard also plans to increase the international equity exposure of Vanguard Target Retirement Funds, Vanguard LifeStrategy Funds, and Vanguard STAR Fund from approximately 20% to approximately 30% of the equity allocations. The exposure to domestic equities in these funds will be reduced so that the overall allocation of stocks and bonds remains the same.
Vanguard to Simplify Funds, Increase International Exposure - Financial Planning
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Old 09-27-2010, 05:55 PM   #2
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I find it interesting that VG is upping the international slice of these FOF by 50%. Bogle always has said that 20% international should be the correct max allocation.
This is the one area where I think Bogle missed the boat. If he believes investors should let the market determine how much to own of individual stocks (cap-weight indexing) why does he arbitrarily set a domestic/international mix? Wouldn't it logically follow that he'd favor a cap-weighted world index? And if I recall, international equities account for about 50% of the world's equity value, so a 50% allocation makes sense from that perspective.
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Old 09-27-2010, 06:00 PM   #3
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Originally Posted by Gone4Good View Post
This is the one area where I think Bogle missed the boat. If he believes investors should let the market determine how much to own of individual stocks (cap-weight indexing) why does he arbitrarily set a domestic/international mix? Wouldn't it logically follow that he'd favor a cap-weighted world index? And if I recall, international equities account for about 50% of the world's equity value, so a 50% allocation makes sense from that perspective.
Anyone know what the folks over at the Bogleheads are saying about this?
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Old 09-27-2010, 07:46 PM   #4
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Anyone know what the folks over at the Bogleheads are saying about this?
Overwhelmingly positive comments with a few concerns about the timing and some concerns about tweaking/changing/not staying the course.
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Old 09-28-2010, 04:17 PM   #5
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I've been doing this on my own for years, but maybe now my Vanguard "Portfolio Analysis" will stop yelling at me for having a large percentage of my equities in foreign stocks ...
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Old 09-29-2010, 03:13 AM   #6
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This may make sense to those who feel the $ will crash in a not to distant future against the yen and Euro.

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I find it interesting that VG is upping the international slice of these FOF by 50%. Bogle always has said that 20% international should be the correct max allocation. Things are changing.
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Old 09-29-2010, 07:34 AM   #7
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I don't think 50% of a portfolio in international makes sense, as currency fluctuations adds a risk not present in domestic equities.

I agree 20% of portfolio in foreign is too low. I think 50 is too high, so 30% sounds about right (I am 25% myself).
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Old 09-29-2010, 07:58 AM   #8
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Still 50/50 here. Is it right? So far, so good. Only time will tell.
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Old 09-29-2010, 09:11 AM   #9
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Link to the Vanguard article. Includes explicit listing of which specific funds will be affected, etc. Basically similar info. in other respects.

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Old 09-29-2010, 12:48 PM   #10
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This is good news, as I feel more comfortable with the allocations in their FOF's now. I always thought they were light on international exposure and missed out on diversification benefits. This makes recommending their FOF's easier to those desiring a one fund solution to their investment needs.
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Old 09-29-2010, 01:32 PM   #11
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Link to the Vanguard article. Includes explicit listing of which specific funds will be affected, etc. Basically similar info. in other respects.
I also noticed in that article a link to another recent Vanguard article announcing that they are switching tracking indexes for the Total International fund to provide broader international coverage including small cap international and Canada equities. And an Admiral share class of the Total International fund. All good news to me since I have been acquiring Pacific, European, and Emerging Markets funds separately mainly to get access (eventually) to Admiral shares and lower ER's. Now I have almost enough to sell all those and move into the Admiral Total Intl Index and only realize around $3000 in cap gains in the sell/buy.

I'm curious if anyone could guess how they would likely implement the switch from the MSCI EAFE+Emerging Markets index to the new index (MSCI all country World ex US)? I wonder if there will be a sizeable cap gains distribution from repositioning the fund's investments to align with the new index. Just a gut guess is that only 10-15% of the fund's assets would have to move to complete the new index, and that most of the sales of current holdings may result in a low cap gains (due to price declines the last few years).
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Old 09-29-2010, 01:39 PM   #12
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Originally Posted by Gone4Good View Post
This is the one area where I think Bogle missed the boat. If he believes investors should let the market determine how much to own of individual stocks (cap-weight indexing) why does he arbitrarily set a domestic/international mix?
Historically, I've underweighted foreign equities because I didn't have as much faith in the transparency and governance of foreign financial systems and companies. Also, because most things affecting my cost of living are in USD, I wanted my investments to more closely track the value of the USD. After the shenanigans (industrial and governmental) of the last two years, I place a lot less faith in the US governance being superior. It might be time for me to increase my foreign %.
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Old 09-29-2010, 08:17 PM   #13
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Historically, I've underweighted foreign equities because I didn't have as much faith in the transparency and governance of foreign financial systems and companies. Also, because most things affecting my cost of living are in USD, I wanted my investments to more closely track the value of the USD. After the shenanigans (industrial and governmental) of the last two years, I place a lot less faith in the US governance being superior. It might be time for me to increase my foreign %.
I trust corporations of all nationalities (including ours) up to the point where they can achieve a reasonable dividend payout ratio.

It's either that or whatever Buffett buys...
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Old 10-01-2010, 04:06 PM   #14
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I'm curious if anyone could guess how they would likely implement the switch from the MSCI EAFE+Emerging Markets index to the new index (MSCI all country World ex US)? I wonder if there will be a sizeable cap gains distribution from repositioning the fund's investments to align with the new index. Just a gut guess is that only 10-15% of the fund's assets would have to move to complete the new index, and that most of the sales of current holdings may result in a low cap gains (due to price declines the last few years).
I'm guessing their won't be much of a distribution related to the conversion. As you noted, they probably won't have to do many trades to effect the transition. The entire portfolio only has a 3.8% unrealized capital gain, so I'd expect something less than that to be realized.
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Old 10-02-2010, 08:13 PM   #15
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I don't think 50% of a portfolio in international makes sense, as currency fluctuations adds a risk not present in domestic equities.

I agree 20% of portfolio in foreign is too low. I think 50 is too high, so 30% sounds about right (I am 25% myself).
Currency diversity is a plus, not a negative. Who knows which central bank is going to destroy their money fastest?
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Old 10-02-2010, 08:24 PM   #16
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Currency diversity is a plus, not a negative. Who knows which central bank is going to destroy their money fastest?
I understand your point. But a US retiree with expenses in US dollars must decide which goal is most appropriate:
- Best risk-adjusted return denominated in a worldwide weighted basket of currencies
or
- Best risk-adjusted return denominated in US dollars
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