Why Balanced Funds Have Outperformed Target Date Funds

[Markola]

Hope springs eternal but the spoiler is, international exposure.


https://www.morningstar.com/funds/why-biggest-target-date-funds-have-underperformed

 

[donheff]

Hah. And I have worried a little that my AA is short on International. I assumed that I was not following the efficient frontier with enough fidelity and that the target funds probably did (for their inputted risk levels). I just never could push more toward international because they seemed to lag too much. Nothing I heard seemed to favor a rebound, at least in the EU, so I sat with my more US focused allocation.

I imagine that will switch when I least expect it and bite me but, what the heck -- USA, USA!

 

[Stormy Kromer]

International funds have been a boat anchor in my portfolio for decades.

 

[VanWinkle]

My take on this: Those with a long horizon(30 years or more) should have a meaningful allocation to non US stock funds. Those retired with less than 30
years can make the choice of all US or a less meaningful allocation to non US equity. The last time I tax loss harvested my International fund(2020), I reallocated into total US and have not gone back across the pond for equity.

VW

 

[COcheesehead]

YTD for me.
International up 16%
US big cap blend up 13%
US small cap blend up 19%

I don’t use balanced funds for the same reason I don’t use bond funds. There is a greater likelihood that the bonds owned by the funds are below market coupon bonds purchased when rates were low and thus the income generated by these is below what I can get in individual bonds today.
I used to use Fidelity Puritan FPURX as a core holding. The yield right now on that fund is just over 2%.

 

[VanWinkle]

YTD for me.
International up 16%
US big cap blend up 13%
US small cap blend up 19%

I don’t use balanced funds for the same reason I don’t use bond funds. There is a greater likelihood that the bonds owned by the funds are below market coupon bonds purchased when rates were low and thus the income generated by these is below what I can get in individual bonds today.
I used to use Fidelity Puritan FPURX as a core holding. The yield right now on that fund is just over 2%.

Total US market is up 17.40%(VTSAX)
Total international is up 10.35%(VFWAX)

What you gained on international, you seem to be underperforming in the US large cap area. These are active funds I am guessing?

VW

 

[COcheesehead]

Total US market is up 17.40%(VTSAX)
Total international is up 10.35%(VFWAX)

What you gained on international, you seem to be underperforming in the US large cap area. These are active funds I am guessing?

VW

They are managed. The small cap exposure when added to the large cap likely puts me at total market and the international outperforms. I am quite a bit overweight in small caps - about 3X the index and about 20% below the index in large cap.

 

[Markola]

^^^^ You’ve done better than me, as our intl stock index VTIAX is only at 10.3% YTD. Our international bond index fund VTABX is up 3.4% vs the domestic index at 1.5% but those two usually don’t diverge for long.

 

[VanWinkle]

They are managed. The small cap exposure when added to the large cap likely puts me at total market and the international outperforms. I am quite a bit overweight in small caps - about 3X the index and about 20% below the index in large cap.

It appears you are currently outperforming by taking additional risk per the small cap allocation and concentrated non-US allocation. It worked for me too, until it didn't. I wish you better luck!

VW

 

[Closet_Gamer]

I keep my international funds because I'm a glutton for punishment.

Seriously, they have been brutal underperformers, but over the long haul its good currency hedge and a rebalancing opportunity.

I do favor a dividend-focused international fund. At least that way it has some sort of steady drip coming out of it that I can put wherever makes sense. Doesn't resolve the performance issue though.

 

[COcheesehead]

It appears you are currently outperforming by taking additional risk per the small cap allocation and concentrated non-US allocation. It worked for me too, until it didn't. I wish you better luck!

VW

I am bond heavy so I can take more risk with equities. In all likelihood, I may never touch them in my lifetime.

 

[FiveDriver]

YTD for me.
International up 16%
US big cap blend up 13%
US small cap blend up 19%

I don’t use balanced funds for the same reason I don’t use bond funds. There is a greater likelihood that the bonds owned by the funds are below market coupon bonds purchased when rates were low and thus the income generated by these is below what I can get in individual bonds today.
I used to use Fidelity Puritan FPURX as a core holding. The yield right now on that fund is just over 2%.

I'd like to know where you're putting your Intl Allocation, s'il vous plait.

I don't follow Intl closely.....I just keep an eye on KWEB which fluctuates too much right now.

 

[COcheesehead]

I'd like to know where you're putting your Intl Allocation, s'il vous plait.

I don't follow Intl closely.....I just keep an eye on KWEB which fluctuates too much right now.

Just one fund, TVFVX. 16% YTD. 35% 1 year. 33% 3 years - the years I have held it.

 

[NW-Bound]

International funds have been a boat anchor in my portfolio for decades.

+1 with a twist.

My US stocks/funds outgrow the international funds, and because I don't rebalance, the international funds become a smaller percentage of the portfolio that they don't matter much anymore.

Recently, I looked at them and thought, why bother as these were too small. Sold some of them, and may continue to do so.

 

[FiveDriver]

Just one fund, TVFVX. 16% YTD. 35% 1 year. 33% 3 years - the years I have held it.

Thank You Sir. I want to add some Intl exposure.....I put it on my Watch List.

 

[Chuckanut]

I had international index funds as part of my AA for well over a decade. I waited and waited and waited, but at some point if the tree doesn’t yield much fruit, you have to pull it out and plant a different tree. So, now I am all USA stocks index which includes stocks with significant international business.

Perhaps if I was 40 I would have been willing to wait another decade.

Simplicity is nice.

 

[MarieIG]

Yes, I am not surprised. I do hold some international for diversification. (I almost feel as if it is taking medicine or doing exercises that I don't like.)

The bulk of my total US is VTSAX and the bulk of my total VTIAX. When I rolled over my 401k into IRAs, I put the bulk of foreign in my regular IRA, as opposed to Roth (as it has been very difficult for me to get overly excited about the international). I am not selling any of the shares in either of these funds in my Roth, and when values drop in convert a few shares here or there.

DH has a target fund in his 401k - which has been less than stellar. Since his 401k ended up with a different company, I am less pleased with the handling.

 

[Markola]

Although my international stock funds have been disappointing for the last decade, they’ve been a raging success compared to my bond index funds.

 

[Texas Proud]

I have a very small international exposure in my 401(k) but moved that earlier this year...



I got out of international decades ago... and I would bet big money that the positive gain I have doing that more than offsets the negative I MIGHT have for this year... and I would say big time...


As always... YMMV...

 

[ncbill]

No international for me.

Companies in most ex-US countries still aren't required to report under anything approaching GAAP standards, so I flat-out don't trust their numbers.

 

[Koolau]

One vanguard Roth devoted to the world minus US (or some such language.) It only seems prudent to have some international exposure - though many of my funds have exposure through US global companies.



All in all, I'm happy with my overall results and realize I could probably do better if I spent time worrying about such things. I'm too old and tired to worry about such things anymore. YMMV

 

[DrRoy]

I made a lucky choice in the 90's and cut my international exposure to near zero. Been happy about that even since.

 

[Markola]

Asset classes sometimes need 20 years or more to cycle through from bottom to top. Murphy’s Law states that one month after I become impatient and dump it, international equity will have its three most spectacular days ever, of the kind that one cannot miss because they determine the success or failure of one’s 20 year returns in a given asset class. Then, a slow grind to all time highs will commence, outperforming domestic all the way.

So, as long as the smart people and computers at Vanguard have me in international, I’ll hang on [emoji31]

 

[Koolau]

Asset classes sometimes need 20 years or more to cycle through from bottom to top. Murphy’s Law states that one month after I become impatient and dump it, international equity will have its three most spectacular days ever, of the kind that one cannot miss because they determine the success or failure of one’s 20 year returns in a given asset class. Then, a slow grind to all time highs will commence, outperforming domestic all the way.

So, as long as the smart people and computers at Vanguard have me in international, I’ll hang on [emoji31]

Besides being lazy about such things - that's part of the reason I don't look very often! I just might DO something and hurt myself. YMMV

 

[Markola]

Yessir. Painful experience is usually the expensive tuition required to learn that it’s better to allocate, buy, hold, then do nothing.

I’m trusting that experience with my bond index funds of late, which is not fun.