Diversification: Finally doing its job.

[Markola]

I added a long short fund to the portfolio QLENX. I have continued to add to and now it is my largest holding. Over 10% of my portfolio. If you really want something that zigs when the market zags, you might want to look into it. Over 30% one year returns, 21% five year, 11% life. Almost completely uncorrelated to the market.

That’s interesting. I’ve never heard of it. It uses derivatives and so forth, and its expense ratio is 4.72%. Probably not for me but more power to you. Up 7.63 YTD, so it is indeed doing it’s job.

https://www.morningstar.com/funds/xnas/qlenx/quote

 

[COcheesehead]

That’s interesting. I’ve never heard of it. It uses derivatives and so forth, and its expense ratio is 4.72%. Probably not for me but more power to you. Up 7.63 YTD, so it is indeed doing it’s job.

https://www.morningstar.com/funds/xnas/qlenx/quote

You realize returns are quoted after expenses, right? So why would you care about expenses as long as the investment outperforms? Bogle’s advice regarding expenses is for investments providing the same outcome like an index. Then choose the lowest cost.

 

[sengsational]

Expenses are like a leak in the bucket; investor money goes in and the investment strategy causes inflows and outflows, all the while there is money leaking out (or at 5%, streaming out). Another fund using the same strategy, but with a lower expense ratio would obviously be better.

 

[Markola]

No one knows but, so far, 2025 could be that point:

Year to date returns:
Vanguard FTSE Europe Stock ETF: +14.22%
Vanguard FTSE Pacific Stock ETF: +4.9%
Vanguard Total US Stock ETF: -$4.24%

So that’s a 10 point spread so far this year between Europe and the US. Markets turn fast and, as we know, if one misses a key trading day or two of any asset class, longer term returns are mediocre.

What matters is long term but it’s interesting to see the current stampede out of American stocks. The spread with European stocks is now almost 20% YTD:

Vanguard FTSE Europe Stock ETF: +16.05%
Vanguard FTSE Pacific Stock ETF: +5.58%
Vanguard Total US Stock ETF: -3.79%

 

[sengsational]

Has the American sell off generated any juicy dividend plays?

 

[gayl]

I've historically been 100% stocks & options. Then I went 85% index ETF, 10% CDs & PWZ, 5% cash. Oops. Wound up with too much in SCHB. So I sold a few thousand shares in my IRA and back to 83% SCHB, 14.5% CDs, 2.5% PWZ. Would like to lower SCHB to 75-80% but I've got a weird feeling that this is not the time (esp ×Div next week)

 

[Markola]

Has the American sell off generated any juicy dividend plays?

Dunno. I’m a humble index fund investor. My iPhone app says total US stock ETF dividend yield is 1.25%, while the Europe one is 3.24%. Pacific is 3.03%. Beats a sharp stick!

 

[twirler]

After YEARS of feeling stupid for not owning anything but the S&P 500 index fund, things are changing. In addition to domestic stocks, we own significant index fund allocations of domestic bonds, international stocks and bonds, alternatives, and home equity. About the only major asset classes I don’t own are gold and cash, though I’m rethinking the cash one lately.

So far in 2025, my stubborn Boglehead tendencies are finally paying off a little.

After swan diving since the 2022 Fed rate increases intended to mop up the 2020 fire hose of Fed money printing, the Vanguard Total US Bond Market Fund (VBTLX) is up 1.9% YTD. Maybe the fall 2024 Fed rate cuts are finally kicking in.

More remarkably, after decades of relative lethargy, international stocks have a pulse. Just over two months into this year, Vanguard Total International Stock Index Fund (VXUS) is up 7.53%. Domestic stocks are going the other direction.

Of course, things can and will change throughout 2025, but it’s also possible these are emergent trends. Some active investors will say, “Meh, when a trend emerges I’ll pile in,” forgetting that the biggest moves in any market are dependent on already being invested for just a day or two per year when things move big. That knowledge is why diversified investors endure years of mediocrity in big portions of our portfolios: We know change happens fast and we want to be prepared for anything.

Like spring after a long winter, it’s nice to see long dead grass turn green.

I guess, but if you are being honest about this, take all the money you had in diworseififcation add it up and run the back test for what you missed out on.

 

[Markola]

I guess, but if you are being honest about this, take all the money you had in diworseififcation add it up and run the back test for what you missed out on.

A drunk, broke monkey can backtest and come up with multiple successful high-risk strategies that seem completely obvious in hindsight. What counts is the actions one takes while staring at the abyss of the unknown in front of oneself at a given time. I, for one, chose not to gamble so much but to own a share of the whole casino. It’s taken patience but it’s worked out just fine.

 

[COcheesehead]

Expenses are like a leak in the bucket; investor money goes in and the investment strategy causes inflows and outflows, all the while there is money leaking out (or at 5%, streaming out). Another fund using the same strategy, but with a lower expense ratio would obviously be better.

Sort of what I said. If similar outcomes are possible elsewhere. pick the lower cost one. If proprietary like QLENX, only results matter.

 

[ArmchairMillionaire]

After YEARS of feeling stupid for not owning anything but the S&P 500 index fund, things are changing. In addition to domestic stocks, we own significant index fund allocations of domestic bonds, international stocks and bonds, alternatives, and home equity. About the only major asset classes I don’t own are gold and cash, though I’m rethinking the cash one lately.

So far in 2025, my stubborn Boglehead tendencies are finally paying off a little.

Like spring after a long winter, it’s nice to see long dead grass turn green.

I chose my username based on the book on which I based my investment allocation when I first got interested in investing. The premise of that book was to put 34% in a large-cap US Index fund, 33% in a small-cap US Index fund, and 33% in an International Index fund. I stuck with that for the first 15 years. (from about age 30 to age 45)

With a hopeful retirement at 55, when I hit 45, I dialed it back a bit and added some bonds to the mix with an allocation of 25% in large-cap US Index funds, 25% in small-cap US Index funds, 25% in International Index funds, and 25% in Total Bond Market Index funds. Twice a year, in January and July, or when things got out of balance by ~5% or more, I would re-balance to my desired allocation levels.

Once I turned 50 and I realized my liquid net worth had hit 7 figures and I was only 5 years from a prospective early retirement, I decided to dial my aggressiveness back some more and switched to an allocation of 20% in large-cap US Index funds, 20% in small-cap US Index funds, 20% in International Index funds, and 40% in Total Bond Market Index funds. Fortunately, my timing couldn't have been better as that was in the middle of February, 2020, just before the markets took a tumble due to COVID. But by March 20th, my allocation percentages were all out of whack so I rebalanced over that weekend to try to get back to a 20/20/20/40 allocation and that move luckily happened to coincide with the bottom of the COVID drop. By the end of August that year, the markets were back to where they were in February, but my net worth was up almost $300K. Lucky me. I did rebalance a little in August (Things weren't quite off by 5%, but it was time for my semi-annual review) and I probably missed out on some gains through the rest of 2020, but I was happy enough to be where I was.

Admittedly, most of this was luck, but I also stuck to my fundamentals of rebalancing at +/- 5% and not selling into a panic. I'm still at 20/20/20/40, and I almost rebalanced back in February of this year, but none of my allocation levels were off by 5% yet, so I'm just riding this out.

We live in a LCOL area, so I don't consider our meager home equity as part of our net worth since we have to live somewhere, and if we decided to sell and buy a different home, we'd probably have to spend more than we'd get for our current home.

So I know what you mean by the long dead grass turning green.

 

[Koolau]

I chose my username based on the book on which I based my investment allocation when I first got interested in investing. The premise of that book was to put 34% in a large-cap US Index fund, 33% in a small-cap US Index fund, and 33% in an International Index fund. I stuck with that for the first 15 years. (from about age 30 to age 45)

With a hopeful retirement at 55, when I hit 45, I dialed it back a bit and added some bonds to the mix with an allocation of 25% in large-cap US Index funds, 25% in small-cap US Index funds, 25% in International Index funds, and 25% in Total Bond Market Index funds. Twice a year, in January and July, or when things got out of balance by ~5% or more, I would re-balance to my desired allocation levels.

Once I turned 50 and I realized my liquid net worth had hit 7 figures and I was only 5 years from a prospective early retirement, I decided to dial my aggressiveness back some more and switched to an allocation of 20% in large-cap US Index funds, 20% in small-cap US Index funds, 20% in International Index funds, and 40% in Total Bond Market Index funds. Fortunately, my timing couldn't have been better as that was in the middle of February, 2020, just before the markets took a tumble due to COVID. But by March 20th, my allocation percentages were all out of whack so I rebalanced over that weekend to try to get back to a 20/20/20/40 allocation and that move luckily happened to coincide with the bottom of the COVID drop. By the end of August that year, the markets were back to where they were in February, but my net worth was up almost $300K. Lucky me. I did rebalance a little in August (Things weren't quite off by 5%, but it was time for my semi-annual review) and I probably missed out on some gains through the rest of 2020, but I was happy enough to be where I was.

Admittedly, most of this was luck, but I also stuck to my fundamentals of rebalancing at +/- 5% and not selling into a panic. I'm still at 20/20/20/40, and I almost rebalanced back in February of this year, but none of my allocation levels were off by 5% yet, so I'm just riding this out.

We live in a LCOL area, so I don't consider our meager home equity as part of our net worth since we have to live somewhere, and if we decided to sell and buy a different home, we'd probably have to spend more than we'd get for our current home.

So I know what you mean by the long dead grass turning green.

Sounds more like good management than luck. Good on you.

 

[YellowSubmarine]

Sorry, I was off a few years. It was in 2009 when GM tried to go bankrupt and bondholders got the shaft. The administration at the time changed some bankruptcy rules during the gov't takeover. Bondholders were offered stock and never got paid. I'll never trust bonds again.

And this was a year after the Lehman Bros. disaster. I know an investor friend that lost $1million from his bond portfolio at Lehman Bros. when that happened. He told me " I thought bonds were supposed to be safe". His $1m bond at Lehman would be worth about $5 million today if he had it invested in any SP index stock index fund.

Individual bonds have the ability to go to 0% of their value. The SP index doesn't. Which is more risky?

fwiw... I am an investor since 1977; and been in bonds since the 80s. 51% of my portfolio is allocated to individual bonds. Over the years, I had three defaulting issues; and Lehman Bros was one of them. However, in every case, I received a partial settlement. On Lehman, I received about 0.26 per 1.00. If I waited, the settlement was closer to 0.7 (from what I heard); but that was a year or so latter.

 

[Koolau]

fwiw... I am an investor since 1977; and been in bonds since the 80s. 51% of my portfolio is allocated to individual bonds. Over the years, I had three defaulting issues; and Lehman Bros was one of them. However, in every case, I received a partial settlement. On Lehman, I received about 0.26 per 1.00. If I waited, the settlement was closer to 0.7 (from what I heard); but that was a year or so latter.

I don't see any "problem" with bonds. Yes, some default. That's why you never put a $Million in one bond. Diversification in bonds is just as important as in equities. YMMV

 

[twirler]

A drunk, broke monkey can backtest and come up with multiple successful high-risk strategies that seem completely obvious in hindsight. What counts is the actions one takes while staring at the abyss of the unknown in front of oneself at a given time. I, for one, chose not to gamble so much but to own a share of the whole casino. It’s taken patience but it’s worked out just fine.

You are just throwing the baby out with the bath water here. Suit yourself. You’ve lost 50% returns for 2% returns on your bonds. Stocks are actually safer in the long run. As for international, that was a corporate rug pull. The only thing thriving in Europe right now is a defense contractor in Germany. International is basically a socialist cesspool of unproductive assets. Now I am not trashing all forms of diversification, but history is telling you something and so far I’ve been on the right side of it.

If you are not going into a normal retirement age, it’s beneficial to be as productive as you can be with yourself and money, but everyone has different risk tolerance and if you can’t handle the heat it’s best you stay out of the kitchen.

 

[Markola]

The game ain’t over yet, friend.

 

[TickTock]

As for international, that was a corporate rug pull. The only thing thriving in Europe right now is a defense contractor in Germany. International is basically a socialist cesspool of unproductive assets. Now I am not trashing all forms of diversification, but history is telling you something and so far I’ve been on the right side of it.

I won't copy/paste my entire previous post from another thread Opinion on International or Global Funds , but I will summarize.

• S&P500 and EAFE each have >a decade run of outperforming the other.
• Over 50 years, (1970-2019) S&P500 total returns were 8.82% and EAFE 9.13%

 

[HFWR]

I’m with Buffett, who thinks market returns will be modest going forward, although that was before recent events. As for now, my bond funds are limiting the downside, as I’d hope they would. Only down half a percent so far. I can live with that. That doesn’t account for inflation though….

 

[TickTock]

That seems likely. The long-term return on equity is dividend + earnings growth + changes in PE. US dividends are low and PE is high.

 

[Koolau]

I guess I think of diversification into bonds and all things ex-US as a defensive play. I've never been about trying to get the highest returns. I don't like spending my time researching the "best" strategy so go for a shotgun approach which will, hopefully, not lose me too much money in a downturn. I also hope it will make me a decent return most of the time.

 

[bobbyr]

I guess I think of diversification into bonds and all things ex-US as a defensive play. I've never been about trying to get the highest returns. I don't like spending my time researching the "best" strategy so go for a shotgun approach which will, hopefully, not lose me too much money in a downturn. I also hope it will make me a decent return most of the time.

likewise

 

[tflannery]

I am a Boglehead guy. I never realized how many different financial products that people use on this forum. Crazy expense ratios and leverage......Not my thing, just an observation.

I got away from Bogleheads Forum because my warnings about Tariffs etc...kept on getting deleted by Ladygeek. Here I am. Diversification works until it doesn't. Dark times for our country, do you best to endure it.

 

[TickTock]

I'm with Koolau on this. I tried to craft a strategy that will do 'well' 'over time' during 'varied' markets.

 

[Markola]

I am a Boglehead guy. I never realized how many different financial products that people use on this forum. Crazy expense ratios and leverage......Not my thing, just an observation.

I got away from Bogleheads Forum because my warnings about Tariffs etc...kept on getting deleted by Ladygeek. Here I am. Diversification works until it doesn't. Dark times for our country, do you best to endure it.

An unknown is, how long will we need to endure?

I’m hearing smart macro investors say, assuming few tariff roll-backs, the central banks have only one tool to address the shock of this import tax increase: Lower rates and inject liquidity. That’s usually good for risk assets, like stocks, after a lag. Bond and real estate prices too. I also read today that markets have now priced in 4 rate cuts in 2025 totaling 1%, so liquidity injections seem on the way.

We could be looking at another K-shaped recovery, with non-asset owners facing more and worse to endure, and longer, once again. And glowing press releases aside, permitting and building any actual new factories here will take several years.

 

[Markola]

I started this thread when it seemed like international equities were finally having a moment during the “anywhere but the U.S. trade.” Now they are currently face-planting with all other equities, maybe worse.

Let’s hear it for bonds? Anyone? Bueller…?