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

[cbo111]

So, my Vanguard VPAS advisor sent me a letter stating that he recommended increasing my International exposure from 30 to 40%. He believes it "will help lower my volatility and risk over the long term." So I ask myself, why now? Has something changed on the world scene that drives this recommendation? Your thoughts?
Oh, and by the way, the letter said the transaction will occur on May 12th unless I log in to my account and decline the recommendation. Good thing I read the letter! I thought it was just another prospectus or advertisement.
Chuck




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[mickeyd]

Oh, and by the way, the letter said the transaction will occur on May 12th
unless I log in to my account and decline the recommendation

I like to set and maintain my own AA. No one has a bigger stake in my investment outcome than do I. I have never received such a letter from VG in over 10+ years.

 

[samclem]

So, my Vanguard VPAS advisor sent me a letter stating that he recommended increasing my International exposure from 30 to 40%. He believes it "will help lower my volatility and risk over the long term."

This probably mirrors a similar change Vanguard announced a few months ago in their Target Date funds. They've upped intl equity from 30% up to 40% of total equity exposure. We had a few threads about it at the time, you might find something using the search function.
It doesn't strike me as a big deal--but I'd probably prefer 30% foreign to 40% foreign.

 

[retirementguy1]

So I have read in a few books that said International stocks should be 20% of your equity portfolio. You probably have significant bonds so it is hard to say on percentages. Are they talking about equity% or overall investments?

 

[cbo111]

So I have read in a few books that said International stocks should be 20% of your equity portfolio. You probably have significant bonds so it is hard to say on percentages. Are they talking about equity% or overall investments?

They are talking 40% for international stocks and an increase from 20 to 30% of my taxable bond allocation. I guess a telecon with the advisor would be prudent. Find out what his thinking is before telling him thanks and please do not increase the international exposure.

 

[samclem]

They are talking 40% for international stocks and an increase from 20 to 30% of my taxable bond allocation. I guess a telecon with the advisor would be prudent. Find out what his thinking is before telling him thanks and please do not increase the international exposure.

Right, the increase in both intl equities and intl bonds is in line with their previously announced changes to Target Date funds (see link at post 3). You can ask the advisor to tell you more, but I (seriously) doubt he'll have anything to add to what is in their announcement--it's not like the change was his idea, he's just attempting to implement the Vanguard decision.

 

[rayinpenn]

No one can say with certainty exactly what mix is best. They can study history and extrapolate trends but of course history is no guarantee of the future.

May I ask will there a charge for this reallocation? If so tell them pound salt.


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[cbo111]

The only charge is my annual .03% fee for the pleasure of having them set up and manage my AA. So, in the back of my mind, I'm thinking if I decline their recommendations, why am I paying them for this advice?



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[dkarst]

Don't you mean 0.3% annual fee for the advisory services, not 0.03%?

 

[rayinpenn]

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

I'm guessing your paying 3/10 of one percent which equates to $3 dollars for every thousand (.003).
1) Vanguard is estimating what mix will serve you best and they offer no guarantees right?
2) Your on a financial blog discussing asset allocation which is again not a science but at best educated an guess.
3) if you have a size able amount in vanguard say $300K your fee would be $900. That is the only number that is absolute here. Let's say you among the lucky few who have a million bucks you'd be forking over a cool $3,000 a year. Here in the Ray in Penn household the Mrs. and I stretch $3000 a very long way indeed.

I don't pretend to know as much as Vanguard about the mathematics of their investment algorithm but couldn't you find a couple of diversified mutual funds that would achieve the same highly diversified results? In my mind the name of the game to wealth is to minimize expenses, all expenses. In five years that $900 a year will cost you $5000 and that doesn't sit well with me. Yes I'm cheap but that's why I'm reading a financial blog at 6:12am and geek oh geek enjoying it.


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[Animorph]

Foreign stocks are now at lower P/E's than the U.S., so they might look a little better for the future. But surely Vanguard wouldn't be market timing?

 

[Options]

You might find this discussion and embedded links helpful:

https://www.bogleheads.org/forum/viewtopic.php?t=159493&f=10

 

[RunningBum]

Foreign stocks are now at lower P/E's than the U.S., so they might look a little better for the future. But surely Vanguard wouldn't be market timing?

I figured they would be since international hasn't come close to keeping up with US in the last year or so, so I swapped some Total Stock Market with Total International to get them back to my AA, which happens to be 35% international. I'm not increasing that to 40% though.

 

[Joe24816]

Think what QE did for the US stock market. Europe just announced similar QE program, you would think you can expect similar results.

 

[samclem]

Think what QE did for the US stock market. Europe just announced similar QE program, you would think you can expect similar results.

I wonder. When things started to look precarious, the USD was sought out as a safehaven and that helped it maintain its value (so far) despite the easy money shenanigans. I don't know if the euro will be seen in the same light, particularly if Germany loses influence/will. Greece is definitely not out of the woods, and neither is it alone. If things go poorly, there will be tremendous pressure for more easy euros, and the value of that currency vis-a-vis the dollar could suffer. All just my opinion. A retiree with expenses in USD should think hard before making a bet on the euro. And, a "bet" is just what it would be.

 

[gcgang]

Unless you will incur cap gain hit, go along with it. Most people have too much in their home market.


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[Spanky]

Foreign stocks are now at lower P/E's than the U.S., so they might look a little better for the future. But surely Vanguard wouldn't be market timing?

not market timing but making the necessary adjustment per valuation and the change in size of the international market.

 

[Animorph]

Here's Morningstar's take on future stock returns, U.S. and international:

Setting Expectations for Stock Returns

"Summary
Returns on stocks can be broken down into three components: dividend yield, growth in real earnings, and changes in valuations.
U.S. stocks will likely offer lower long-term real returns going forward than they have in the past.
Foreign stocks offer higher expected returns than U.S. stocks.
Realized returns will likely differ from expectations, but a framework for creating return expectations can facilitate better planning and help investors evaluate where an asset offers sufficient compensation for its risk. "

 

[Big_Hitter]

even passive foreign stock funds have higher mgt/trading expenses - but I like them anyway

 

[gcgang]

not market timing but making the necessary adjustment per valuation and the change in size of the international market.

I don't think that's what they're doing, at least not on recent market movement. US market has been moving UP to highest % of total in many years, 58% (despite US economy with only 15% of global GDP).

But still, the 40% Foreign would be about market neutral.




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[retire2020]

My advisor has me in 35% in International and 30% in Domestic. It hurt me last year but hoping it'll make up for it this year.

 

[dallas27]

I do 55/35/10 us/int/emerging


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[Totoro]

Didn't read all the replies yet, apologies if I'm repeating.

One motivation probably is that the US economy is becoming smaller %-wise as a part of the world as a whole.

Has been going on for a while, and is expected to continue.

The shift now can be decent timing-wise as Europe & other markets seem to have lower valuations vs. the US.

 

[eta2020]

Didn't read all the replies yet, apologies if I'm repeating.

One motivation probably is that the US economy is becoming smaller %-wise as a part of the world as a whole.

Has been going on for a while, and is expected to continue.

The shift now can be decent timing-wise as Europe & other markets seem to have lower valuations vs. the US.

Foreign sales of S&P 500 accounts for over 33% and is growing. I do not think that portion is counted as part of US economy.

So I think owning great multinationals (PM, KO, GE, PEP, JNJ, PG) gives one nice high quality, wide moat international exposure. We need to keep this in mind when computing exposure of portfolio to foreign markets.

Of course it wise to have things like VXUS, VGK, VWO in addition to multinational US Companies.

 

[zerman]

I've thought that there is a big rotation going on and while the US remains an economic superpower, for the last 20+ years and for the foreseeable future the rest of the world will be catching up. I've been 50% international for as long as I've been in index funds, and will continue to be until something convinces me to change. I don't think it matters so much what percentage you pick, just pick one and stick to it (rebalance) and don't change based on short term guesses, or you will probably be wrong.