Equal weight vs. capitalization weight between world regions

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Digit
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Equal weight vs. capitalization weight between world regions

Post by Digit »

Is it possible to reduce risk in one’s passive long-term investment by spreading investments equally over World regions instead of according to capitalization?

At the moment, an investment in Vanguard VT Total World index ETF is an investment in 54% North American equities, 23% European equities, 14% Pacific equities and 9% Emerging markets equities. Is this the best possible spread for my passive long-term global investment?

It would be easy to reduce US exposure by placing part of the capital in Vanguard VXUS index ETF, which is similar to the VT fund, except it excludes US equities. This would lead to a more even investment spread – more like the markets a few years ago, before US stocks boomed and the rest of the world didn’t.

If I top up with an Emerging Markets index fund I could aim for, for example:
25% USA
25% Europe
25% Pacific
25% Emerging Markets

Or perhaps:
33% USA
33% Europe
33% Pacific and Emerging Markets.

Would this make sense from a passive index fund investor perspective? And if so, which allocation would be the best? There must be ways of calculating the best possible region allocation for a decade-long investment, depending on correlation between different regions, and on differences in regional growth and volatility. (I would of course have to rebalance annually.)

The same question applies to investing in Emerging Markets. The iShares MSCI Emerging Markets index ETF places more than 50% in China, Taiwan, South Korea and neighboring countries. Only 7% is invested in India, 5% in Russia, and 5% in Mexico. Would I reduce my risk, if I moved closer to an equal-weight investment instead of an investment weighed according to capitalization?

Thank you, my fellow Bogleheads
Last edited by Digit on Sun Nov 02, 2014 2:40 pm, edited 2 times in total.
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Phineas J. Whoopee
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Re: Equal weight or volume weight between world regions

Post by Phineas J. Whoopee »

Hi Digit, and welcome to the forum!

Your word volume usually means the number of shares that change hands on an individual trading day in a market, or across many markets. Based on context, you probably meant to say capitalization. If after reading this post you conclude I'm right you may wish to edit the subject line.

You talk about reducing risk, rather than maximizing return. That's a good mental shift to make, although you don't tell us what you mean by "risk."

The conventional, equity-indexing answer is the investment world has globalized, major players have already decided on their asset allocations between regions and countries, and the only reliable way to gain advantage over them is to know something they don't, or better analyze what everyone already knows. You could also get lucky, but I wouldn't call it a reliable method. :wink:

Relative to global cap weightings, you're talking about putting more into smaller markets, and less into larger. Such a strategy might end up paying off with higher returns, or result in lower ones, but I think it could be characterized as increasing uncertainty of outcome, which may be what you mean when you write the word risk.

Welcome, once again.

PJW
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Aptenodytes
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Re: Equal weight or volume weight between world regions

Post by Aptenodytes »

Regions make sense as a diversification strategy, not a risk strategy.

If you want to take on more risk, increase your small and small-value holdings, both domestically and globally, or just increase your equity holdings across the board.

Trying to increase risk by altering your regional weights goes against the conventional wisdom, and in this case I don't see any evidence to suggest the conventional wisdom is wrong.

There's a bit of an exception regarding emerging markets -- some people say overweighting emerging markets is a sensible risk play. But not everyone does.
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Re: Equal weight or volume weight between world regions

Post by dharrythomas »

You'll get a number of different allocation recommendations, though not many here will recommend that you go lower than market weight for your home country.

The real answer is that no one knows and it depends on your personal preferences. What we do know with relative certainty is that correlations and relative returns are not stable and we can't accurately predict how they will fluctuate over any particular period of time. Jack Bogle says that one of the first things he learned was "Nobody knows nothing!" :oops: Keep that in mind and good luck.

We spread stuff out because we do not know. if we knew, a concentrated portfolio is the only way to get rich. Since we don't know, a diversified approach maximizes the chances that we'll preserve our savings until we need them. Concentration increases the chances of exceptional returns, both exceptionally good and exceptionally bad.

Harry
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Re: Equal weight vs. capitalization weight between world reg

Post by asset_chaos »

Lots of investment ideas are reasonable and will work for you if you can stick with your reasonable plan. The two stock plans you suggest are both reasonable. However, I see no reason to believe that either will be lower risk than the market stock portfolio. I suggest that if you are worried about stock risk---some stocks are overvalued---that the better antidote to worry about stock risk is to have a bit more bonds. You will obtain much more overall portfolio risk reduction from having a bit more in bonds than from rejigging the kinds of stocks you have.
Regards, | | Guy
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Digit
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Re: Equal weight vs. capitalization weight between world reg

Post by Digit »

Thank you for your responses! Sorry about my lack of investment vocabulary. I hope to learn soon.

Apparently, some explanation is needed: I’m NOT thinking of the difference between small-cap and large-cap companies. And I’m NOT thinking of gambling on one region of the world, as opposed to another.

Quite the contrary: What I want to do is to take away as much of the gambling element as possible from my equity investment. I want to invest according to a system that will give me the very best relation between risk and capital growth, irrespective of the financial news of the day or month.

This is what passive investing in a global index fund is supposed to do – as opposed to investing in fewer markets or sectors. When one market goes up, I can hope that another goes down and vice versa. Reducing my risk through diversification, without reducing my return.

But when more than half the value of the global index fund is placed in US equities it seems that I’m more vulnerable to US markets and politics than I would like to be. (And, perhaps more importantly, more vulnerable to the dollar currency than desirable for a European.)

Hypothetically, let’s talk about Region ‘A’ and Region ‘B’. The stock markets in Region ‘A’ hold five times the equity value of the markets in Region ‘B’. Will this, as a rule of thumb, make Region ‘A’ five times less volatile than Region ‘B’? If this is the case, then capitalization weight seems to be the way to go.

On the other hand, if there is no general correlation between region size and stability then I should steer toward equal weight between as many regions as possible. This should give me the most stable market value of my collective investment. Again, speaking from a purely (high school level) mathematical perspective. No gambling intended, no timing efforts, no speculation in undervalued or overvalued regions.

I assume the real world is neither of these two clean-cut scenarios. So what to do?

The answer must also be very much affected by which regions seem to move in sync. For instance, if the markets in India and the Arab countries are more out of sync with each other, than the markets in Europe and USA, then a diversification on a mathematical basis might suggest equal weight between the three regions: 1) Europe and USA, 2) India, 3) Arab countries.

Again, I’m sorry that I probably don’t have the terms right, yet. Please educate me. But I do hope that you still will get the gist of what I’m thinking.
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Aptenodytes
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Re: Equal weight vs. capitalization weight between world reg

Post by Aptenodytes »

My advice is don't try to invent a new approach from scratch. Do something that lots of smart disinterested experts think is best.

Pick a US percentage between 50% and 70%. For the non-US portion, use market weights.
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Re: Equal weight vs. capitalization weight between world reg

Post by nisiprius »

The problem with any equal-weighted approach is a logical one. Where do you stop?

What exactly is a "region?" If it makes sense to equal weight regions, why cap-weight within the region? Wouldn't it be better to equal weight the countries within the region, or maybe equal weight the countries of the world, period?

And how big is a "country?"

Once you've accepted the basic premise of "Equal weight rather than capitalization weight," why shouldn't you give Bangladesh equal weight with China?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
inbox788
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Re: Equal weight vs. capitalization weight between world reg

Post by inbox788 »

nisiprius wrote:The problem with any equal-weighted approach is a logical one. Where do you stop?

What exactly is a "region?" If it makes sense to equal weight regions, why cap-weight within the region? Wouldn't it be better to equal weight the countries within the region, or maybe equal weight the countries of the world, period?

And how big is a "country?"

Once you've accepted the basic premise of "Equal weight rather than capitalization weight," why shouldn't you give Bangladesh equal weight with China?
And while you're at it, are Hang Seng and TSWE countries? And would you include the Terran Stock Exchange, Iraq Stock Exchange or the Cuban Stock Exchange in your portfolio? And is it legal?

http://online.wsj.com/articles/SB979506865508947273
http://www.marketwatch.com/story/are-yo ... 2014-03-26
http://www.iraq-businessnews.com/tag/stock-exchange/

Along a tangent, has anyone come across a low cost index fund that tracks the NASDAQ? I've held a position in Fidelity FOCPX that tilts towards technology and small/mid caps, and has traditional more startups than NYSE, but it's an active fund. Still the expenses are not much more than the NASDAQ 100 indexes I could find.
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Phineas J. Whoopee
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Re: Equal weight or volume weight between world regions

Post by Phineas J. Whoopee »

Aptenodytes wrote:...
Trying to increase risk by altering your regional weights goes against the conventional wisdom, and in this case I don't see any evidence to suggest the conventional wisdom is wrong.
...
I don't disagree with what you wrote, but would like to point out OP asked about decreasing risk, not increasing it.
PJW
Clive
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Re: Equal weight vs. capitalization weight between world reg

Post by Clive »

This article indicates that 20 major markets equal weighted had the safer 30 year historic worst case http://patrickoshag.tumblr.com/post/932 ... patriotism since 1900. However in more recent times/decades companies tend to be much more global. The S&P500 for instance earns around half of revenues from foreign (some stocks like Texas Instruments I believe derive around 90%+ of earnings from foreign). The UK FT100 (large cap) is comprised of around 27% UK earnings, 30% Emerging Markets, 20% US, 20% Europe and odd bits here and there (Japan, Canada etc.).

Just because a company opted to list/report/pay taxes to the US via NYSE, or London or wherever doesn't necessarily make it a US (London, wherever) business. What equal weighting internationally across multiple stock markets can provide however is geopolitical risk reduction. If NYSE is closed for multiple days due to some circumstance such as Hurricane Sandy and you hold only stocks/funds listed on that exchange ... and some other global crisis occurs during the same period, then being locked out could become a issue. At a very simple level if you hold Microsoft and Cisco stock both NYSE listed, that's more concentrated than had you held Microsoft via NYSE and Cisco via the Mexican Stock Market - but equally that also increases your risk of encountering a geopolitical event. On that basis it makes more sense to equal weight rather than weighting by total country market cap size/share IMO. 5% across 20 markets, rather than 50% in one, smaller amounts in others.

20 is way to many in the modern world however. Much of individual European countries are merging into a single European market, much of Asia are somewhat merging/correlated. Three might suffice in the modern world, Asia, Europe/London, New York. That way the sun will rarely set and if some crisis does occur you might trade at almost any time of the day and night. You might never need to call upon such 'out of hours' trading, but across a 20 or 30 year investment lifetime you just never know and having the option may at some point prove to have been beneficial.

As a Brit, we have greater flexibility/access than do the US. Hong Kong and/or Singapore are relatively tax efficient - imposing no withholding taxes on dividends. London is good for foreign investors as again no withholding taxes on dividends. A US individual however may encounter obstacles in setting up foreign bank/broker accounts due to the rules/regulations that the US imposes making others less open to accepting US investors.
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Aptenodytes
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Re: Equal weight or volume weight between world regions

Post by Aptenodytes »

Phineas J. Whoopee wrote:
Aptenodytes wrote:...
Trying to increase risk by altering your regional weights goes against the conventional wisdom, and in this case I don't see any evidence to suggest the conventional wisdom is wrong.
...
I don't disagree with what you wrote, but would like to point out OP asked about decreasing risk, not increasing it.
PJW
Fair enough, but then just invert the words to get the same point -- if you seek to decrease your risk, don't use regional weights as the means.
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Phineas J. Whoopee
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Re: Equal weight vs. capitalization weight between world reg

Post by Phineas J. Whoopee »

Digit wrote:...
Hypothetically, let’s talk about Region ‘A’ and Region ‘B’. The stock markets in Region ‘A’ hold five times the equity value of the markets in Region ‘B’. Will this, as a rule of thumb, make Region ‘A’ five times less volatile than Region ‘B’? If this is the case, then capitalization weight seems to be the way to go.
...
There is no necessary correlation between volatility and market capitalization. 'A' might be as volatile as 'B', or more, or less, by any multiple, depending mostly on the time period one chooses to measure. I'm not suggesting you personally have impure motives, but plenty of financial salespeople do. One can decide in advance on a conclusion, and then find a way to present the data so it looks like it's supportive.

It seems you're asking about reducing the volatility of your whole portfolio. The best method is to include less-risky assets along with more-risky ones. Typically, for individual investors, that means mixing fixed income with equities, in a proportion the person chooses for themselves. We can point you toward resources to help you make your decision, if you're interested.

It isn't a rule, regardless of what you may read, but if you don't know where to begin, Jack Bogle suggests age-in-bonds as a starting point, from which you might decide it makes sense to shift one way or the other given your own particular circumstances.

Back to the volatility question - all the other investors already know everything you know. They have their own volatility tolerances, and you have yours. For a US-based investor, although I don't believe you've said you are one but it matches the profile of the majority of investors posting here, you also should take account of currency risk. If, as happened Friday, Japanese stocks go up a lot, but the Yen goes down versus the Dollar, then the net effect for a US-based investor is a combination of stock and currency moves. It isn't only a matter of whose markets are up or down by how much. There's no way to avoid the currency question.

I'll say again, if you're concerned about volatility, dilute your more-risky, that is stock, investments with less-risky ones, like fixed income. Unless you think you know more than others, or are better at analysis, there's no reliable way to garner an abnormal return by weighting regions at other than market cap.

There is, as noted upthread, an argument to be made that small and value stocks produce outsized returns even considering their higher risks. I don't buy it myself, but plenty of very smart people do.

PJW
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Digit
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Re: Equal weight vs. capitalization weight between world reg

Post by Digit »

nisiprius wrote:The problem with any equal-weighted approach is a logical one. Where do you stop?

What exactly is a "region?" If it makes sense to equal weight regions, why cap-weight within the region? Wouldn't it be better to equal weight the countries within the region, or maybe equal weight the countries of the world, period?

And how big is a "country?"

Once you've accepted the basic premise of "Equal weight rather than capitalization weight," why shouldn't you give Bangladesh equal weight with China?
In some ways investing in the stocks of a region of the world is comparable to rolling a die. No one knows where the markets are heading. If we want to minimize our risk, we would like to roll the die multiple times and take out the average. This is, of course, what an investment fund allows us to do.

Everything else equal, it doesn’t seem like a good idea to have only four rolls of the die, one roll, representing USA, weighing in at above 50%, and another, representing Emerging Markets, at below 10%. It would be better if the four die rolls had equal weight. And even better if there also were more rolls.

And yes, nisiprius, you’re right about the logic. Where do you stop? Why not, for example, think of USA as a number of separate regions: West Coast, East Coast, and Southern states? That would undermine my line of thought.

The answer must be taken from the real world: If West Coast USA, East Coast USA, and the Southern states grow and contract independently of each other, in a way so that these movements tend to cancel out each other, then yes, they are independent regions. If they move in sync they’re not. If the American markets as a whole are several times calmer than the markets of the rest of the world, then capitalization weight is a good idea.

So we’d have to look at different areas of the world and see how the markets tend to group themselves in real life. This is very ambitious, but perhaps some readers of this thread can tell us about people who’ve done it, and what they found out.

And, nisiprius, to continue with your example of China vs. Bangladesh. Let’s just say all of Asia showed to be one herd of countries, except for your example, Bangladesh, which moved in very different ways. If Bangladesh seemed to be its own entity and it tended to move in inverse sync with USA, which the rest of Asia didn’t. Wouldn’t it then make good sense to invest more in Bangladesh than in China?

This would have nothing to do with trying to beat or time the market. The investment could go up, and could go down. Just like an investment in China. No gambling. It’s – in the spirit of Bogle – about following the market. But with the best possible risk reduction through diversification.
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Re: Equal weight vs. capitalization weight between world reg

Post by Digit »

Dear Clive,
Thanks for your interesting thoughts and for that link. I haven’t had time to read it, and I’m about to turn in now, as I’m … European … based in continental Europe … paying my expenses in Euros.


Dear Phineas J. Whoopee,
Please feel 100% confident that I’m not a salesperson. (Ha ha! No finance nor sales affiliation, whatsoever.) There will be no links to products from me, later on!!!

Thank you for receiving me so well in here, and for your kind advice. I have given my mix of fixed income vs. equity much thought, and I’ve read a lot of guidelines for this. My question in this thread is exclusively about reducing risk of my equity portfolio through the best possible diversification.
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Re: Equal weight vs. capitalization weight between world reg

Post by Phineas J. Whoopee »

Digit wrote:...
My question in this thread is exclusively about reducing risk of my equity portfolio through the best possible diversification.
The best possible is not knowable in advance. It can only be identified in arrears. That's the boiled-down message of we posters.

My apologies if I, as I see now I did, lumped you in with financial salespeople. That was not my intent, but it was the effect of my words. I meant to suggest you are not one at all. I'll try to do better next time.

PJW
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Re: Equal weight vs. capitalization weight between world reg

Post by asset_chaos »

Digit wrote:But when more than half the value of the global index fund is placed in US equities it seems that I’m more vulnerable to US markets and politics than I would like to be. (And, perhaps more importantly, more vulnerable to the dollar currency than desirable for a European.)
These are two different considerations, and it might be good to unravel them. First the markets, then the currency. That currently around half the value of global equities is made up of US domiciled companies is simply a fact. In the past that value has moved in a band roughly of 40-60% of global stock market capitalization being in US domiciled companies, and in the future that percentage will move around some again. The euro zone is around 10% and Europe in total is somewhat over 20% of global market cap. Nothing is likely to change those numbers drastically in our investing lifetimes. One thing to understand about total market indexing is that no matter how your thought processes slice the total market into pieces---be the pieces regions, countries, economic sectors or whatever else springs from a man's imagination---total market indexing means you will always be invested in the best performing and worst performing pieces, the riskiest and least risky (in hindsight) pieces over whatever measurment timeframe is meaningful to you. And no matter how you tilt away from the total market by over- or under-weighting various pieces of the market, there is no way to guarentee that you'll experience less risk. It's not that the total market is guarenteed to have the least risk. Certainly there will always be some piece of the market that you could have concentrated your investment in that in hindsight experienced less volatility, less risk. The point is that, absent some special insight that allows good predictions of the future, you're just as likely to tilt towards the piece that turns out to be more risky as you are to tilt towards the piece that turns out to be less risky. Underweighting the US means overweighting economic sectors like financials, mining and basic materials and underweighting sectors like tech and health care. Is that a good bet for the next 10-20 years? I don't know. It might or it might not be. But the point is that it is a bet.

The above argues for investing in a total global stock index, but your currency concern argues for having a bit of home bias. Currency fluctuations do add volitility and risk to investments, but like most investing questions, I argue that the question of currency is best considered in the context of your total portfolio instead of just from the point of view of stocks in isolation. Your portfolio should have some bonds. Those bonds should all be denominated in your home currency. When you consider the foreign currency exposure of your entire portfolio (stocks plus bonds), if you think it is more exposed to foreign currency fluctuations than you can be comfortable with, then certainly overweight with an index fund of companies domiciled in your home currency until the foreign currency exposure of your total portfolio has moved into your comfort zone. But your proposed portfolios don't really help much with this currency concern. You aren't just underweighting the US and overweighting Europe, you're also overweighting the Pacific and emerging markets.

I suggest that you may want to pinpoint exactly what's concerning you. If it's exposure to the US and its somewhat fraught politics, it's fine to tilt away, but recognize that this is a bet against the market, one that may or may not pay off. On the other hand, if the major concern is to have less exposure to currency fluctuations, I think your proposed plans are not quite satisfactory: you should explore investing in a global stock index fund along with a domestic index fund to bring the currency exposure of your total portfolio into your comfort zone.
Regards, | | Guy
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Re: Equal weight vs. capitalization weight between world reg

Post by Clive »

asset_chaos wrote:That currently around half the value of global equities is made up of US domiciled companies is simply a fact. In the past that value has moved in a band roughly of 40-60% of global stock market capitalization being in US domiciled companies, and in the future that percentage will move around some again. The euro zone is around 10% and Europe in total is somewhat over 20% of global market cap. Nothing is likely to change those numbers drastically in our investing lifetimes.
By eye - from 1900 it looks like US listed stocks have ranged from as low as 15% (1900) up to as high as 75% (late 1960's)

Image

Look also at how Japan rose from a very small proportion in the late 1960's (US peak), to around 40% by the late 1980's.

Would a investor starting in 1970 have been better served by weighting US 75% and Japan just a few percent. Or starting 1990 weighting Japan 40%, US 25%. If you're unaware have a look at how the US stocks performed for the next decade+ after 1970, or how Japan's stocks performed post 1990.

If you were buying a 24 single stocks portfolio, two in each of 12 different countries/regions (as per those listed in the above image/chart), would you weight the two US stocks 25% each and much lower weights to the others, or equal weight them all around 4% each. The concentration risk for the former seems way too high.

Looking at the worst case 30 year real gains history in the chart presented in the article I highlighted earlier

Image

equal weighting all 20 countries was one of the safest overall choices. Yes a couple of the others beat equal weighting (Australia and US), however likely equal weighting might continue to remain one of the better choices whilst the other best cases might change to being other countries.

The inference is that nearly all countries can at times endure difficulties/bad results - but those bad spells don't necessarily all coincide with each other. By equal weighting you reduce the risk of being heavily weighted to a big loss and instead spread the risk to being more akin to a greater chance/frequency of smaller losses.

A problem with equal weighting is actual implementation. A fund of such will incur the withholding taxes that each country might (or more usually does) apply. China for instance imposes a 10% withholding tax on both dividends and capital gains. Other countries impose 30% withholding tax on just dividends ... etc. The more cost/tax efficient is to hold individual stocks yourself - which imposes work/effort to maintain. Regional indexes such as Hang Seng can be tilted heavily towards single stocks/sectors. For instance HK 2800 (Hang Seng) has a near 14% weighting to HSBC (Bank) http://www.trahk.com.hk/eng/fundinvperfholding.asp , whilst the UK FT100 has a 7% weighting to that same bank https://www.vanguard.co.uk/documents/po ... 00-etf.pdf

A good aspect of the US S&P500 is that it strives to limit the size of each individual stock and sector and in deriving 50% of its earnings from foreign is a good choice of candidate holding as one part. Combining that with other similar 'foreign' choices could make up a reasonable overall choice of collective portfolio. However whilst many indexes limit the size of single stocks, they often don't limit sectors, such that you can end up having high sector tilts.

In recently migrating away from holding lots of individual stocks globally towards more passive investing (index funds) the choice I considered was to hold a combination of S&P500 and BRK for US exposure (BRK in paying no dividends helps reduce withholding taxes). The UK FT100 with its wide global earnings initially seemed a reasonable partner to the US holdings, however the FT100 tilts quite heavily at times. Being a UK investor however maintaining a set of individual London listed stocks, limiting the weighting of each stock and each sector isn't too much of a bother to maintain. Upon further investigation however I found that UK midcaps broadly provided historic rewards comparable to such a equal weighted set of stocks. Such that for me a reasonable passive choice is something like 25% S&P500, 25% BRK, 50% UK Midcaps (VUSA, BRK-B, VMID). That's something the next generation (my kids) could more easily handle. I've also opted for a Talmud type overall asset allocation, third in land (homes), third in business (stocks with a target asset allocation as above), third in reserves (bonds) - but with a twist i.e. initially load up with sufficient bonds to cover 30 years of living expenses (30 year ladder with projected other sources of income as/when they come on line (occupational pension, state pension etc.), supplemented with sufficient bond allocations assuming bonds broadly pace inflation). And the rest dropped into stocks (accumulation/growth to cover longevity/inheritance). As such the older I get the more stocks rise - relative to the whole as bonds are drawn-down/spent. Roof over our heads (imputed rent all paid in advance through owning a home), 30 years of income covered, passive stock holdings with a reasonable prospect of growing at a rate that exceeds the decline/spending rate of bonds.

Mentally I account that as being a broad 80/20 type portfolio. House prices might broadly rise with inflation and owning a home avoids having to pay rent - collectively I see that as being stock like (inflationary uplifted price, imputed rent 'dividend'), weighted a third and combined with a initial third in stocks, third in bonds. As bonds are spent, stocks left to accumulate then after 30 years that's holding 100% 'stocks' (third in home value, two thirds in stocks). A overall average of 83% 'stocks' over the 30 years (66% initial 'stocks', 100% final).

I've investigated 30 year real rewards and found that historically if you cost averaged in over three years and were flexible about the end date (maybe 30, maybe 31, maybe 32 years for instance), which is similar to cost averaging out, then the prospects for a domestic (UK) only stock portfolio is for a 2% annualised real lower end value. Adding in US (international) uplifts that to 3% annualised real. That's assuming accumulation (dividends reinvested). As such a initial third allocation to stocks, third to bonds, spending bond and letting stocks grow, has a reasonable prospect of the stocks at least doubling in real terms over 30 years to cover the amount of bonds spent. That's based on data since 1900, which includes some pretty bad times, so hopefully that might continue to hold going forward. On average the rewards were much better, closer to 5.5% annualised real stock growth - which opens up the potential to top slice periodic lump sums out of stocks (profit take) to supplement income - or leaving a larger inheritance.

Similar in some respects to Buffett. Except in his case bonds are a relatively small proportion, 10% bonds relative to the size of his inheritance being enough to cover lifetime living expenses, leaving the 90% remainder available to be invested in growth (stocks). He's suggested however that he's happy for those stocks to be in a Vanguard S&P500 tracker (for whatever reason - he doesn't suggest the 90% stock holdings should be invested in BRK (maybe because S&P500 weights BRK 1.4%)).
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Digit
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Re: Equal weight vs. capitalization weight between world reg

Post by Digit »

Thank you, everyboody for your interesting comments! :D

Somehow another thread here on Bogleheads evolved to address some of same issues. Here’s the link:
http://www.bogleheads.org/forum/viewtop ... 4#p2247042
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