Our target allocation for US vs non-US stocks is 2/3 US and 1/3 non-US, but thanks to the thriving US stock market, our allocation has drifted to more like 80/20. If you compare the PE10 for US versus non-US, you can see that the US stock market is overvalued relative to the non-US market by 50-60% (e.g.
).
However, I am having trouble convincing my DW that we need to re-balance back into non-US stocks. She notes that our non-US has under performed for a long time. To test this I ran three models through the Portfolio Visualizer (https://www.portfoliovisualizer.com/backtest-portfolio) using 100% Vanguard Total Stock Mkt Idx Inv (VTSMX), 100% Vanguard Total Intl Stock Index Inv (VGTSX) and 66/34 of VTSMX/VGTSX.
She is not wrong. From May 1996 to January 2022 the US stock market had a CAGR is 9.47%, while non-US had 5.23%. Annual re-balancing of a 55/33 US/non-US does better with a CAGR of 8.14%, but still 1.3% worse than 100% US.
Does anyone have a better argument for why one should be re-balancing into non-US now?
Thanks, Zorba.
However, I am having trouble convincing my DW that we need to re-balance back into non-US stocks. She notes that our non-US has under performed for a long time. To test this I ran three models through the Portfolio Visualizer (https://www.portfoliovisualizer.com/backtest-portfolio) using 100% Vanguard Total Stock Mkt Idx Inv (VTSMX), 100% Vanguard Total Intl Stock Index Inv (VGTSX) and 66/34 of VTSMX/VGTSX.
She is not wrong. From May 1996 to January 2022 the US stock market had a CAGR is 9.47%, while non-US had 5.23%. Annual re-balancing of a 55/33 US/non-US does better with a CAGR of 8.14%, but still 1.3% worse than 100% US.
Does anyone have a better argument for why one should be re-balancing into non-US now?
Thanks, Zorba.