How to diversify in international stock?

[dasinsin]

Hi, I read some books and they all tell me to be difersify in invest portfolio, not only invest in US demestic and also in international. I think that is right.

But the EAFE index put around 70% weight in Europe. Is it worth to invest in Europe and Pacific 50%-50% instead of just buy a international fund?  Will that be more diversify?

 

[mathjak107]

I use fidelity diversified international for the bulk of my international and EEM  an emerging market etf for about 5-10% depending on where it is in price.

 

[LOL!]

Don't forget that diversification is not only location but market capitalization.

So I think one would want not only large cap, but mid cap and small cap as well. EFA is pretty much large cap.

I do not know if it is worth it to invest Europeacific 50:50.

 

[kathyet]

Hi, I read some books and they all tell me to be difersify in invest portfolio, not only invest in US demestic and also in international. I think that is right.

But the EAFE index put around 70% weight in Europe. Is it worth to invest in Europe and Pacific 50%-50% instead of just buy a international fund?  Will that be more diversify?

Wouldn't the "total international" have some of each?

Kathyet

 

[d]

Wouldn't the "total international" have some of each?

yup ... vanguard total international has about 58% europe, 27% pacific, 15% submerging markets.

 

[Tadpole]

submerging markets.

Good one!

 

[astromeria]

is this another global warming crack?

 

[mikew]

But the EAFE index put around 70% weight in Europe. Is it worth to invest in Europe and Pacific 50%-50% instead of just buy a international fund?  Will that be more diversify?

Hi Dasinsin
There are many ways to do this. If you want, you could split developed international.
Living in Asia you may want to overweight Asia compared to Europe. Also, I am not sure what books you have read but American books are written for Americans and may overweight American investments more than you want.

Also many of the indexes have a bias to them.
Vanguard Pacific (VPL) is 75% Japan
Ishares Asia Ex Japan (EPP) is 66% Australia

Another thing to think about is that something like Vanguard Emerging (VWO), is about 50% Asia. By adding Emerging to EFA you could increase your Asian exposure without overlap.

Mike

 

[dasinsin]

Also many of the indexes have a bias to them.
Vanguard Pacific (VPL) is 75% Japan
Ishares Asia Ex Japan (EPP) is 66% Australia

Another thing to think about is that something like Vanguard Emerging (VWO), is about 50% Asia. By adding Emerging to EFA you could increase your Asian exposure without overlap.

Mike

Hi Mike and friends:
Thanks for your advise. I have my equity investment 50% in US equity, 40% in international and 10% in Emerging market. About the 40% international, which way you think is better way.
(1) 5%Ishares Asia Ex Japan (EPP)+5%iShares MSCI Japan Index (EWJ)+ 10%Vanguard European Stock ETF (VGK)+ 20% WisdomTree International SmallCap Div (DLS)
(2) 10% iShares MSCI EAFE Index (EFA) + iShares MSCI EAFE Value Index (EFV) )+ 20% WisdomTree International SmallCap Div (DLS)

Maybe most of investment books focus on US equity. For me, a man living in Asia, sometimes it is a strange feeling to not to separate Asia and Europe. I don't know whether it is a right thing to separate them in investing.
Thanks a lot...
Dasinsin

 

[bpp]

I have my equity investment 50% in US equity, 40% in international and 10% in Emerging market.

These are close to the global market weights, a pretty good place to start. If you are going to overweight from there, I would overweight the country (currency) where you are living, or plan to be living in once you are living off your portfolio. I don't particularly see any reason to overweight "Asia" as a whole, though, just your target country/currency.

Where in Asia are you/do you plan to be?

 

[mathjak107]

i like fidelity international discovery with some eem added for emerging markets coverage

 

[dasinsin]

These are close to the global market weights, a pretty good place to start. If you are going to overweight from there, I would overweight the country (currency) where you are living, or plan to be living in once you are living off your portfolio. I don't particularly see any reason to overweight "Asia" as a whole, though, just your target country/currency.

Where in Asia are you/do you plan to be?

Thanks for your comment.
I am in Taiwan. However, it is belong to emerging market.

 

[bpp]

Thanks for your comment.
I am in Taiwan. However, it is belong to emerging market.

As emerging markets go, I have the impression that Taiwan is relatively developed. And with a heavily export-dependent economy, you might find that the market tends to go up when the currency goes down (haven't checked this).

Anyway, it might be worth allocating some percentage to a Taiwanese ETF.
TTT on the Taiwan Stock Exchange has an expense ratio of 0.4%, for example. There's also EWT on the American Stock Exchange, though with an expense ratio of 0.74%. (For what it is worth, I would think it a good idea to get your Taiwanese stock exposure directly through the Taiwan Stock Exchange rather than through an overseas one in order to minimize political risk, unless there are some other good reasons (taxes or fees, for example) not to.)

Just a thought.

 

[dasinsin]

Hi Bpp:
Thanks for your impression toward Taiwan. It is a very export depend country and that is also why I would like to invest in other countries. (Its economic depends on the world..)
There is another reason I have the idea to separate Asia equity and Europe equity instead of just to have an international ETF is correlation. When the invest portfolio is un-correlated, then it is better. It should be same in Europe and Asia Equity, right? :
(EX)US large Value quity is said to be more uncorrelated with SP500 then we can get some benefit from re-balancing and reduce risk. I don't know whether it also works for international value(EFV) and international blend(EFA). Or I can do it better with using Europe equity and Asia equity. There are not many books discuss in international equity investment..

Thanks
Dasinsin

 

[WilliamG]

Seems like most advisors separate "submerging" stocks from developed. After that, seems like some diversify by captitalization and style, with others by geography. Some with a large international component try to do both. I have fallen toward geographical and am very much swayed by William Bernstein's "Four Pillars". Following link may be of interest with several asset allocation points of view:

http://www.geocities.com/finplan825/ModelPortfolios-Data.html

 

[Spanky]

Developed Markets (EFA) - 10%
Emerging Markets (EEM) - 5%
Pacific (VPL) - 5%

Change the percentage as you see fit.

 

[bpp]

There is another reason I have the idea to separate Asia equity and Europe equity instead of just to have an international ETF is correlation. When the invest portfolio is un-correlated, then it is better. It should be same in Europe and Asia Equity, right? :

This is the Total Markets vs Slice-and-Dice debate. I guess I, like WilliamG, slice and dice on geographical boundaries, too. But my slices are pretty close to the market weights, except for my country of residence which is overweighted.

My impression of slice-and-dice is that it doesn't make a huge difference relative to total market, so it depends on how much effort you want to put into it. (I'm getting lazier over time.)

The most important thing is costs. For this reason, I would go with mostly Vanguard ETFs. This will naturally give you some geographical breakdown anyway. I might define 5 geographical regions:

Developed Europe (VGK)
Developed Asia/Pacific (VPL)
North America (VTI, plus maybe a little EWC if you want to be complete)
Emerging Markets (VWO)
Taiwan (TTT)

Of course, if you were to go for strict total-markets weighting, you wouldn't need the TTT, since it is included in VWO. Otherwise, some weightings I might consider are:

1/N (20% in each category above)
50% Taiwan, 12.5% North Am., 12.5% Europe, 12.5% Asia/Pac., 12.5% EM
50% Taiwan, 20% North Am., 15% Europe, 10% Asia/Pac., 5% EM
30% Taiwan, 30% North Am., 20% Europe, 10% Asia/Pac., 10% EM

Etc., etc.

What do you feel comfortable with over the long term?
That might be the second most important consideration, after cost.

 

[dasinsin]

What do you feel comfortable with over the long term?
That might be the second most important consideration, after cost.

Hi Bpp:
Thanks for your help. Your investment knowledge impress me. As a newcomer in investing, your help is quite helpful.
It is my own planned portfolio, I learn the portfolio from Pau Merriman's book (Some people like his advise and some just think he is doing promation.) .
1. 50% US: 12.5%US large+12.5%US large value+12.5%US small+12.5%US small value.
2. 40% international: 10%international large+10%International large value+20%international small.
3. 10% Emerging
Yes, you are right. Cost is a big concern. I think maybe I should follow current plan and avoid to swing among plans. Slice-and-dice and total market is both good way to do. But I don't have value and size type ETF to use if following geographic region.

I don't put in fix income due to I am 30yo and have a job with steady income. I think I should take more risk when I am still young.

May I know how old are you and where you live? Maybe you are also a foreigner since you also take ETF as investment tool. Just guess!
Dasinsin

 

[bpp]

Hi Dasinsin,

Thanks for the compliments, though my investment knowledge does not go very deep.

I'm a US citizen living in Japan, in my 40s. I use ETFs because of their low cost; I cannot buy mutual funds directly from Vanguard, and the commissions for mutual funds are higher than those for ETFs at my broker.

I think maybe I should follow current plan and avoid to swing among plans.

That sounds like a very reasonable plan. Your Paul Merriman portfolio looks fine as is. The only suggestion I might repeat is to consider increasing your Taiwan exposure, if you like. Also, you might not want to wait TOO long to add some fixed income, unless you really have no fear of drops in the stock market. All up to you, of course.