Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Is Large Increase in Foreign Holdings Justified?
Old 05-13-2015, 05:54 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 2,525
Is Large Increase in Foreign Holdings Justified?

I occasionally use Vanguards Portfolio Watch Tool to analyze my portfolio. Recently, this tool has taken a hard turn to international holdings in that its recommending 30-50% international equity and I just checked it and it's also suggesting 20-50 % in foreign bond holdings.

In the past for many years I followed Bogle's advice that since most large US companies have significant foreign exposure there is little need to explicitly buy a lot of foreign holdings. Vanguard has obviously significantly changed this tune recently. Thoughts?
ejman is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-14-2015, 09:41 AM   #2
Thinks s/he gets paid by the post
photoguy's Avatar
 
Join Date: Jun 2010
Posts: 2,301
Have you read Vanguard's various white papers on this topic:

Foreign Equity:
https://personal.vanguard.com/pdf/icriecr.pdf
https://personal.vanguard.com/pdf/icrrhb.pdf
https://institutional.vanguard.com/i...ECR_112006.pdf

Foreign Bonds:
https://personal.vanguard.com/pdf/icrifi.pdf


Personally, I've been at 40% foreign equity since i started investing (about 15 years). As far back as I can remember, Vanguard has been recommending substantial foreign holdings. I would consider myself a passive investor / boglehead but you might find that many in this bucket disagree with Bogle on foreign equity.

Regarding foreign bonds - I didn't find the arguments convincing and I hold 0%.

Edit: page 3 of the first PDF has a sidebar that directly answers the question: Can multinational corporations provide enough exposure?
photoguy is offline   Reply With Quote
Old 05-14-2015, 10:04 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Jun 2014
Posts: 1,069
45% foreign - has served me well in the last year too. The beta between foreign and domestic isn't 1, so there is some level of risk reduction there in normal markets. Risk increase though for situations like great recession. no bonds, no way.


19% VIG
19% VOE
19% VBR
19% VEU
19% VSS
5% VWO
dallas27 is offline   Reply With Quote
Old 05-14-2015, 11:10 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 2,525
Quote:
Originally Posted by photoguy View Post
Have you read Vanguard's various white papers on this topic:

Foreign Equity:
https://personal.vanguard.com/pdf/icriecr.pdf
https://personal.vanguard.com/pdf/icrrhb.pdf
https://institutional.vanguard.com/i...ECR_112006.pdf

Foreign Bonds:
https://personal.vanguard.com/pdf/icrifi.pdf


Personally, I've been at 40% foreign equity since i started investing (about 15 years). As far back as I can remember, Vanguard has been recommending substantial foreign holdings. I would consider myself a passive investor / boglehead but you might find that many in this bucket disagree with Bogle on foreign equity.

Regarding foreign bonds - I didn't find the arguments convincing and I hold 0%.

Edit: page 3 of the first PDF has a sidebar that directly answers the question: Can multinational corporations provide enough exposure?
Thank you for the links. I hadn't rear these white papers. Lots of reading ahead!
ejman is offline   Reply With Quote
Old 05-14-2015, 11:59 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Nov 2013
Location: Bay Area
Posts: 2,745
I've moved some out of bond and put it in foreign stock funds. I should have done it sooner b/c I think foreign market will outperform US or fixed bond market for foreseeable future. But what do I know?
robnplunder is offline   Reply With Quote
Old 05-14-2015, 12:39 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 2,525
I'm just going over the first white paper posted by photoguy (thanks!) and its interesting that the data that Vanguard is using only goes back to 1970 for developed markets and 1985 for emerging markets. An interesting quote also caught my eye "Since the ten years ended 10/31/2008, any allocation to non-U.S. stocks has increased average volatility"

Damn, if the world post 2008 is reflective of what we can expect in the future then what? It sure ain't easy is it?

I guess another thought rattling in the background somewhere is that very few countries other than the US have been able to sustain a 4% WR. So diversifying into countries that have historically supported lower WR rates helps how?
ejman is offline   Reply With Quote
Old 05-14-2015, 12:44 PM   #7
Thinks s/he gets paid by the post
nash031's Avatar
 
Join Date: Jun 2013
Location: Bonita (San Diego)
Posts: 1,795
Moving from 20% of equities to 30% of equities as international via a combination of the TSP I fund and VGIAX myself via my periodic purchases (overall 85/15 AA). 0% foreign bonds.
__________________
"So we beat to our own drummer in the sun;
We ask for nobody's permission to run.
I just wanna live in a world like that;
Now I'm gonna live in a world like that!" - World Like That, O.A.R.
nash031 is offline   Reply With Quote
Old 05-14-2015, 12:46 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Jun 2014
Posts: 1,069
Quote:
Originally Posted by ejman View Post
So diversifying into countries that have historically supported lower WR rates helps how?

For me, I'm in the contribution phase, so when investment is flowing into America, my contributions are buying foreign, and when they flowing out of America, I'm buying America. At minimum, I feel it has be buying what is out of favor, whether it's for market reasons or currency reasons.

America is about the only country to recover since 2008, and the Dollar is crazy high right now. I would fear missing the recovery in foreign assets, and not catching the falling dollar to boot.
dallas27 is offline   Reply With Quote
Old 05-14-2015, 02:17 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,808
My equalibrium level of foreign equity is 40% (of total equity). I set this based on previous research papers from the past. Within that 40% it is split 40/60 between large cap international (VEU) and small cap international (VINEX). I'm just mentioning this as an example of what one might do.

What I actually do with that foreign allocation is to move it between comparabe US and foreign indexes based on an algorithm that is backtested over several decades. I'm only mentioning this because as of May 1 it had me move my allocation back to foreign. So it's a little late in getting back to foreign (in a successful trade into US equities over several (months) but the point is that this backtested algorithm is saying foreign is fine for now.

So if one is wondering is now still an OK time to allocate to foreign equities, I'd agree that it's a decent time to do it. At least you have one example here.
Lsbcal is offline   Reply With Quote
Old 05-14-2015, 05:40 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 2,525
Quote:
Originally Posted by Lsbcal View Post
My equalibrium level of foreign equity is 40% (of total equity). I set this based on previous research papers from the past. Within that 40% it is split 40/60 between large cap international (VEU) and small cap international (VINEX). I'm just mentioning this as an example of what one might do.

What I actually do with that foreign allocation is to move it between comparabe US and foreign indexes based on an algorithm that is backtested over several decades. I'm only mentioning this because as of May 1 it had me move my allocation back to foreign. So it's a little late in getting back to foreign (in a successful trade into US equities over several (months) but the point is that this backtested algorithm is saying foreign is fine for now.

So if one is wondering is now still an OK time to allocate to foreign equities, I'd agree that it's a decent time to do it. At least you have one example here.
Is that an algorithm you developed or something in the public domain?. Just so I understand, you stay within a certain equity/fixed AA but switch between foreign and domestic equities based on the algorithm?
ejman is offline   Reply With Quote
Old 05-14-2015, 06:03 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,808
Quote:
Originally Posted by ejman View Post
Is that an algorithm you developed or something in the public domain?. Just so I understand, you stay within a certain equity/fixed AA but switch between foreign and domestic equities based on the algorithm?
It is my algorithim. I'm not recommending it to others and not trying to brag here. I just mentioned it as a way of making clear that this might be a good entry time for putting money to work in foreign equities. Since it is momentum based and compares US vs. foreign, this should come as no surprise. The last 4 months or so has seen foreign outperform US.

Yes, instead of a fixed international I move that component between US and international. Statisticaly it has worked out but month to month this can vary a lot. Again not recommended as most here are buy/hold.
Lsbcal is offline   Reply With Quote
Old 05-14-2015, 06:14 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 2,525
Coincidentally I just got an email from Vanguard re a live video broadcast titled "The case for a Global Portfolio" On May 28th. I guess that particular vibe must be in the air...
ejman is offline   Reply With Quote
Old 05-14-2015, 06:34 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
With international returning about -4% in 2014 and US equities about +13%, it seems that early in 2015 was not a bad time to increase portfolio weights to international. Don't forget to add in Draghi's quantitative easing which makes it more compelling.

OTOH, maybe this horse is already out of the barn with Int'l up 11% in 2015 and US up only 4% so far this year.
LOL! is offline   Reply With Quote
Old 05-14-2015, 06:42 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 9,358
We've been increasing our international holdings. I think it spreads the risk around a bit better than betting the farm on one country, when that country could be the next Japan or Greece.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 05-14-2015, 07:11 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Oct 2012
Location: Reno
Posts: 1,331
My foreign allocation is 35% of total equity, but similar. Similar on small/large in both foreign and US. I increased foreign and also rebalanced. a year ago (a little) and the S&P crushed everything. This year (so far), the foreign is starting to pay off.
I also have foreign bonds as 30% of bond allocation and am about to plunk some more in emerging market, although the largest position is currency hedged. Also a long-term position in GIM, which I start selling chunks when it's above 10.50 and buying when it's below 8 (I've been buying the last year).


Quote:
Originally Posted by Lsbcal View Post
My equalibrium level of foreign equity is 40% (of total equity). I set this based on previous research papers from the past. Within that 40% it is split 40/60 between large cap international (VEU) and small cap international (VINEX). I'm just mentioning this as an example of what one might do.

What I actually do with that foreign allocation is to move it between comparabe US and foreign indexes based on an algorithm that is backtested over several decades. I'm only mentioning this because as of May 1 it had me move my allocation back to foreign. So it's a little late in getting back to foreign (in a successful trade into US equities over several (months) but the point is that this backtested algorithm is saying foreign is fine for now.

So if one is wondering is now still an OK time to allocate to foreign equities, I'd agree that it's a decent time to do it. At least you have one example here.
RobLJ is offline   Reply With Quote
Old 05-14-2015, 07:14 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2008
Posts: 7,422
OTOH, China's GDP is declining, which is also hurting the economies of emerging nations, like Brazil.

I guess PIIGs are no longer a concern either?
explanade is offline   Reply With Quote
Old 05-14-2015, 07:22 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,808
Quote:
Originally Posted by LOL! View Post
With international returning about -4% in 2014 and US equities about +13%, it seems that early in 2015 was not a bad time to increase portfolio weights to international. Don't forget to add in Draghi's quantitative easing which makes it more compelling.

OTOH, maybe this horse is already out of the barn with Int'l up 11% in 2015 and US up only 4% so far this year.
Well the horses are definitely out of the starting gate for 2015 with international leading. The results would be even more lopsided if reported in non-dollar (local currency) terms. Even if both international and US run neck and neck, it could be that some of that US dollar strength will reverse a bit giving better dollar based returns for international. I'm just up in the stands rooting for both international and US.

Here is an article from Pimco that suggests dollar strength in the future:
PIMCO | Viewpoints - Three Reasons the Dollar Should Stay Strong
Lsbcal is offline   Reply With Quote
Old 05-14-2015, 11:32 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Oct 2012
Location: Reno
Posts: 1,331
PIIGS are a concern; US stock valuations are a concern; bond valuations are a concern; cash is a concern due to the sure hyperinflation; and then there is the zombie invasion, as a concern. Guns and ammo and toilet paper and vienna sausages are also a concern. Everything concerns me.

I like investing in Emerging economies, gradually, when the tide is going out or has gone out, but I could be wrong here. I got Japan wrong 10 years ago or so; emerging economies not as much.

Quote:
Originally Posted by explanade View Post
OTOH, China's GDP is declining, which is also hurting the economies of emerging nations, like Brazil.

I guess PIIGs are no longer a concern either?
RobLJ is offline   Reply With Quote
Old 05-15-2015, 07:06 AM   #19
Thinks s/he gets paid by the post
2017ish's Avatar
 
Join Date: Apr 2012
Location: Nashville
Posts: 2,504
Quote:
Originally Posted by RobLJ View Post
PIIGS are a concern; US stock valuations are a concern; bond valuations are a concern; cash is a concern due to the sure hyperinflation; and then there is the zombie invasion, as a concern. Guns and ammo and toilet paper and vienna sausages are also a concern. Everything concerns me.

...
Hence, OMY * N!
__________________
OMY * 3 2ish Done 7.28.17
2017ish is online now   Reply With Quote
Old 05-15-2015, 01:39 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,008
Quote:
Originally Posted by LOL! View Post
With international returning about -4% in 2014 and US equities about +13%, it seems that early in 2015 was not a bad time to increase portfolio weights to international. Don't forget to add in Draghi's quantitative easing which makes it more compelling.

OTOH, maybe this horse is already out of the barn with Int'l up 11% in 2015 and US up only 4% so far this year.
Right - it does seem like the horse has left the barn. I bought more international in Jan, due to rebalancing after a tough 2014. Been a sweet reward so far.

But just because they are up YTD doesn't mean they will end the year that way.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Large Increase in Umbrella Premium ejman FIRE and Money 23 02-23-2014 10:03 PM
Financial Advisors - Ever Justified? RockSplat FIRE and Money 23 06-03-2010 08:13 AM
Large increase in 2010 federal health insurance (FEHB) premiums W2R FIRE and Money 21 10-14-2009 07:40 AM
A well diversified large cap ETF yielding > 3.75% and financial holdings < 25% cashflo2u2 FIRE and Money 3 12-19-2008 10:20 AM
Am I justified, or is this a 'shady' business practice... thefed Other topics 19 05-24-2007 08:52 PM

» Quick Links

 
All times are GMT -6. The time now is 12:26 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.