Vanguard recommending increase in International exposure from 30 to 40%.

[pb4uski]

I was curious as to how the changed recommendation compares to the global equity allocation and did the following analysis comparing 70/30 and 60/40 mixes of Total Stock/Total International Stock to the Total World fund.

A 51.7/48.3 mix gets one to Total World, so it seems that Vanguard is simply looking to move its target date portfolios closer to the global market composition and is bridging half of the current difference.

As for me, I'll probably transition slowly to a higher international allocation.

	Total World		Total Stock	Total Int'l		Current 70/30	Diff from Total World		New 60/40	Diff from Total World
United States	51.7%		100.0%			70.0%	18.3%		60.0%	8.3%
Japan	8.1%			16.8%		5.0%	-3.1%		6.7%	-1.4%
United Kingdom	6.9%			14.3%		4.3%	-2.6%		5.7%	-1.2%
Canada	3.2%			6.7%		2.0%	-1.2%		2.7%	-0.5%
France	3.0%			6.1%		1.8%	-1.2%		2.4%	-0.6%
Germany	3.1%			6.3%		1.9%	-1.2%		2.5%	-0.6%
Switzerland	3.0%			6.1%		1.8%	-1.2%		2.4%	-0.6%
Australia	2.5%			5.1%		1.5%	-1.0%		2.0%	-0.5%
China	2.2%			4.7%		1.4%	-0.8%		1.9%	-0.3%
Korea	1.5%			3.2%		1.0%	-0.5%		1.3%	-0.2%
Taiwan	1.5%			3.1%		0.9%	-0.6%		1.2%	-0.3%
Hong Kong	1.3%			2.6%		0.8%	-0.5%		1.0%	-0.3%
India	1.1%			2.3%		0.7%	-0.4%		0.9%	-0.2%
Spain	1.1%			2.3%		0.7%	-0.4%		0.9%	-0.2%
Sweden	1.1%			2.2%		0.7%	-0.4%		0.9%	-0.2%
Netherlands	0.9%			2.0%		0.6%	-0.3%		0.8%	-0.1%
Italy	0.9%			1.8%		0.5%	-0.4%		0.7%	-0.2%
South Africa	0.8%			1.7%		0.5%	-0.3%		0.7%	-0.1%
Brazil	0.7%			1.5%		0.5%	-0.3%		0.6%	-0.1%
Denmark	0.6%			1.2%		0.4%	-0.2%		0.5%	-0.1%
Belgium	0.5%			1.0%		0.3%	-0.2%		0.4%	-0.1%
Mexico	0.5%			0.9%		0.3%	-0.2%		0.4%	-0.1%
Singapore	0.5%			1.1%		0.3%	-0.2%		0.4%	-0.1%
Finland	0.3%			0.7%		0.2%	-0.1%		0.3%	0.0%
Malaysia	0.4%			0.9%		0.3%	-0.1%		0.4%	0.0%
Indonesia	0.3%			0.6%		0.2%	-0.1%		0.2%	-0.1%
Norway	0.3%			0.5%		0.2%	-0.2%		0.2%	-0.1%
Russia	0.3%			0.7%		0.2%	-0.1%		0.3%	0.0%
Thailand	0.3%			0.6%		0.2%	-0.1%		0.2%	-0.1%
Israel	0.2%			0.5%		0.2%	-0.1%		0.2%	0.0%
Philippines	0.2%			0.4%		0.1%	-0.1%		0.2%	0.0%
Poland	0.2%			0.3%		0.1%	-0.1%		0.1%	-0.1%
Turkey	0.1%			0.3%		0.1%	0.0%		0.1%	0.0%
Austria	0.1%			0.2%		0.1%	0.0%		0.1%	0.0%
Chile	0.1%			0.3%		0.1%	0.0%		0.1%	0.0%
Colombia	0.1%			0.1%		0.0%	-0.1%		0.0%	-0.1%
Egypt	0.0%			0.1%		0.0%	0.0%		0.0%	0.0%
Ireland	0.1%			0.2%		0.1%	0.0%		0.1%	0.0%
New Zealand	0.1%			0.2%		0.1%	0.0%		0.1%	0.0%
Portugal	0.1%			0.1%		0.0%	-0.1%		0.0%	-0.1%
United Arab Emirates	0.1%			0.2%		0.1%	0.0%		0.1%	0.0%
Czech Republic	0.0%			0.0%		0.0%	0.0%		0.0%	0.0%
Greece	0.0%			0.1%		0.0%	0.0%		0.0%	0.0%
Hungary	0.0%			0.0%		0.0%	0.0%		0.0%	0.0%
Morocco	0.0%			0.0%		0.0%	0.0%		0.0%	0.0%
Other	0.0%			0.0%		0.0%	0.0%		0.0%	0.0%
Peru	0.0%			0.0%		0.0%	0.0%		0.0%	0.0%
Virgin Islands British	0.0%			0.0%		0.0%	0.0%		0.0%	0.0%
	100.0%		100.0%	100.0%		100.0%	0.0%		100.0%	0.0%

 

[eta2020]

http://www.econ.uniurb.it/materiale/2781_triumph_of_the_optimists.pdf

Over last 100 plus years only Sweden, South Africa and Australia beat US markets. So personally I will remain overweight on US companies. US together with Canada, Australia and Denmark are 4 markets that always posted positive returns over any period of any 20 years.

Austria for example had 100 year period of negative real return.

30% international exposure looks reasonable to me especially in light of getting another 10% plus via US Multinationals.

But Zerman is right. Pick allocation and stick with it.

 

[Totoro]

Nice stats from:

Market Capitalization | World Federation of Exchanges

US markets (Nasdaq, NYSE, American SE) had 48% of the total listed market cap in the world at end of 2002.

By end of 2010 it dropped down to 30%.

Most of the shift seems to come from Asia growing faster than the US.

[Edit] Not sure to what extent access is a factor here though - used to be not even possible to buy Chinese stocks, now it's loosening up.

 

[MBAustin]

FWIW, DH and I today had our annual chat with our FA (who manages a small amount of our investments so that if something happens to me, DH has someone to talk with about investments in general and/or have him take over more of the responsibility - at least until DS is in a place to do that).

He is increasing our international position also for just the same reasons as mentioned above.

 

[eta2020]

Nice stats from:

Market Capitalization | World Federation of Exchanges

US markets (Nasdaq, NYSE, American SE) had 48% of the total listed market cap in the world at end of 2002.

By end of 2010 it dropped down to 30%.

Most of the shift seems to come from Asia growing faster than the US.

[Edit] Not sure to what extent access is a factor here though - used to be not even possible to buy Chinese stocks, now it's loosening up.

A lot changed between 2010 and 2015

The markets overreact on short term bases.

 

[samclem]

As a (mostly) indexer, I count on the market to "know" all the factors that should determine a stock's price, and I think it does a pretty good job over the long haul.
But, when we go to the international market, there are factors that cause equities to not always be "properly" valued. For example, in some cases the population of a country can only invest in their "native" equities, and this could cause them to be priced higher than they would be on a truly open world market. Also, governments can manipulate their currencies to affect the effective price I'd pay when I spend my US dollars. Some nations have poor accounting rules/enforcement practices and other factors that can make it more difficult for investors to even determine a proper price for equities. For these and many other factors, I'm not entirely comfortable in adjusting my portfolio to match world equity valuations. I have foreign exposure, but not 40% of my equities.

 

[Totoro]

A lot changed between 2010 and 2015

The markets overreact on short term bases.

You are right, thanks for pointing that out. US share (Nasdaq + NYSE) is around 40% right now.