Vanguard Target Retirment Funds - International Investments

[Cronan]

I'm 45 and looking to retire "early" at 62. I'm currently invested 100% in Vanguard Total Stock Market, but was starting to wonder if I would be better off in a more diversified fund.

I started researching the Vanguard Target Retirement 2035 fund (VTTHX)but was a bit dismayed to see they were allocated over 35% in International Stocks and Bonds. That seems high to me. Real high. I was thinking it would be under 15% for sure.

Then I checked out their Life Strategy Growth Fund (VASGX), 80/20 Stocks/Bonds split. But they also have over 35% in International Markets.

Main questions: Can anyone give any insight into such a high percentage in International? For me, the multinational companies in the TSM feel like enough diversification.

I know I can just create my own two fund portfolio of US TSM and Bonds which is what I'll probably do. Maybe put 10% in International?

 

[2017ish]

Roughly speaking, US stocks are 50% of the global equity markets (by capitalization). Vanguard's "canned" recommendation in its advice to those in the PAS program or in flagship and flagship select is ~40%. There is at least one "white paper" on its website that explains the rationale. An online search (or a search of this forum) will lead you to a host of research/debates/arguments on this topic.

My personal belief is that 10% isn't worth bothering with (but I'm at 50%). The "consensus" on Bogleheads is that one should have between 0 and 50% in international if a US investor to avoid home-country bias [or not.]

TSM isn't going to do the same thing for diversification as having ex-US holdings. If you underweight the ex-US positions, you are betting that the US markets will continue to do what they have done since 1900. If you overweight ex-US positions, you might be thinking about Japan in 1989. I am agnostic; hence, 50%.

 

[Whisper66]

Main questions: Can anyone give any insight into such a high percentage in International? For me, the multinational companies in the TSM feel like enough diversification.

The simple answer is to provide more Diversification.

There is always the debate about whether the fact that US companies also work overseas is "enough" diversification. No right or wrong answer to that. But many advisors include a significant amount of International in their suggested portfolios. For example:

Paul Merriman's Ultimate Portfolio has 50% international.
Scott Burns Couch Potato Portfolios typically have about 30% international.

 

[LOL!]

Vanguard has a white paper on why international in their multi-fund funds is still BELOW market weight: https://personal.vanguard.com/pdf/icriecr.pdf
There may be a newer version of this paper, so look for it on the Vanguard web site.

I'll say that one needs some foreign stocks in order to cover the US market. You know: Toyota, Honda, Nissan, BMW, Shell, BP, Glaxo, and many, many others.

 

[pb4uski]

+1 I target 30% of equities to internatonal equities... diversification.

International has lagged over the last 5 years but is looking good this year. Tap on 3Y, 5Y, etc to see comparison for different periods.

http://quotes.morningstar.com/chart...dDay":"05/17/2017","chartWidth":955,"SMA":[]}

 

[Markola]

International is having a good year but has lagged the US over 5, 10 or whatever substantial periods one wants to examine. I understand the diversification logic and I used to own about 30% international myself but finally decided after years of disappointment that I'd rather have and own the US' economic problems than the rest of the world's. Brazil, China, Europe - they are all supposed outgrow the US any minute now and, yet, they don't. The US market cap remains 50%+ of the entire world. I'm not trying to be jingoistic, just trying to read the numbers realistically for myself. YMMV.

 

[tennisplyr]

In my midsixties, retired but I'm with you my international holdings are 15-20%...plenty for me.

 

[ERD50]

...
I know I can just create my own two fund portfolio of US TSM and Bonds which is what I'll probably do. Maybe put 10% in International?

I would go with separate funds, especially if in a taxable account. You have more control and flexibility, and likely lower cap gains distributions.

In a taxable account, have the divs deposited to your checking account as part (or maybe all?) of your expenses. They are already taxed, so use that for spending rather than re-invest.

-ERD50

 

[pb4uski]

I love my international in my taxable account.... while a portion of my dividends are not qualified, the tax on those is usually less than the foreign tax credit that I get so the net tax on the international holdings in my taxable account is a net benefit (or net negative effective tax rate).