bobsmith wrote:The Vanguard planner I spoke to suggested I allocate to a 70%/30% US Stock/International Stock ratio (using their TSMI and TInternationalSMI) I know this ratio is adjusted for risk tolerance, but is there an ideal ratio strictly in terms of best diversification? If you're trying to index the global economy, shouldn't the-rest-of-the-world get more than 30% representation? And, so far as I understand, why doesn't Vanguard advocate diversifying bonds in non-domestic markets? Isn't the whole point of indexing to try to best represent the market itself, the use the stock/bond ratio to adjust your risk level?
Vanguard will advocate diversifying international bonds, once their international bond fund is available. They will place that component inside their Target Retirement Funds (I think 80/20). Also, once that fund is available, it will be interesting to see if that becomes part of their "core" recommendation for people who solicit for their portfolio advice. To be consistent, they probably will do that.
On the equity side, with the 70/30 recommendation, that parallels their current allocation in equities in their TR funds. Not too long ago, they recommended 80/20. On this board (looking at this from a U.S. investors standpoint), you still have some who are 100% domestic only and others who go to the (roughly) 40 US/60 Int'l which is to replicate how the world looks today. Perhaps others, with valuations looking more attractive for int'l equities, are loading up even a little more. Larry has mentioned that what is "best" is to start with the "world" look and adjust from there. OTOH, Vanguard published a paper in the past few years where is looked like the sweet spot was in the 30-45% range (off the top of my head). Around 2000, I was around 30% international, today I'm around 43% international.
I figure the odds be fifty-fifty I just might have something to say. FZ