Bogleheads

[Trev H]

Ok, but only if you are looking backwards and considering the Cap Weighted US Market and International Market

I re-did my previous crunch on US and International Market combinations for the timeframe of 1970-2007 and included the details below.

Initial investment of 10,000.00 with no additional contributions is used in the calculation, yearly rebalancing, details included in the results table = 10K Growth, CAGR, StDev and Sharpe Ratio.

Data Sources and Expense Details are included at the end.

US60/IN40 looked to be about Ideal for this timeframe (if you consider current day investment expense cost). Since we are going forward and I really have no idea what the investment expense would have been in the 70's and 80's I backed out the expense of Vanguards Investor Share class from the raw Index returns.

While 80/20 did produce what I call the Volatility Bottom, 60/40 seemed to be much more ideal, based on the Volatility being less than US Market Alone, + Returns and Sharpe being quite a bit higher than US Market Alone.

Trev H

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1970-2007

US and International Market combinations.

[Mel Lindauer]

Hi Trev:

Once again, thanks for sharing all the interesting work you do.

Best regards,

Mel

[Rodc]

One of the most important things I see in this is just how incredibly flat the sharpe ratio curve is when drawn from 100% US to 100% International.

The exact percentage hardly matters at all through a very broad middle ground from say 80/20 to 35/65, all within spitting distance (technical term for equal plus or minus noise) of each other as measured by sharpe ratio.

Once again, it just does not matter what you pick as long as you pick something at all reasonable, and stick with it.

[rgd55]

Thanks Trev

[AshKK]

[Kenster1]

Thanks again Trev for the interesting data.

Here's a somewhat related excerpt on this international topic from Steven Schoenfeld -- chief investment officer for Global Quantitative Management at Northern Trust Global Investments.

http://indexuniverse.com/index....;Itemid=29

Index Universe: Is the interest in areas like international size and style approaches actually returns-chasing or is it a legitimate interest in simply expanding into an area that was not previously explored?

Schoenfeld: I'd like to believe that it's all about rationalization and harmonization of investors' benchmarks and allocations for international as they increase their investments in international. That's what the theoretical purist and the idealist within me would like to believe. That being said, I don't think investors would be increasing their allocations to international as strongly and as enthusiastically as they're doing if you didn't have good performance over the past few years. People wouldn't feel as much of an imperative.

On one hand, because these markets have added performance in the last few years, there's more interest in it. If we had three years of underperformance, it actually might be even a better time to invest in those areas, but you wouldn't have as much excitement. A case could be made for both the chicken and the egg of why investors are putting more into international, but the fact is that institutional investors, retail investors and financial advisors are putting higher and higher allocations in non-U.S. That is, to me, an unambiguously good thing, and it's been something that I've been urging probably for over 10 years. [Read Steven Schoenfeld's article on the subject, "Recapturing That International Flair," in the November/December 2005 issue of the Journal of Indexes here.]

It's so important that investors shed the home country bias that has characterized U.S. portfolios for so long. It sounds like a cliché, but it remains true—we live in a globalized world and non-U.S. blue chip companies are as active in the U.S. economy as U.S. blue chips. As that bias is being reduced, the anomaly of having just a large-/mid-cap developed market benchmark such as EAFE as the primary benchmark for international investing becomes that much more obvious. And that is why I've said publicly, and I'll say again, that EAFE is obsolete.

IndexUniverse.com: What makes EAFE obsolete?

Schoenfeld: It's not that EAFE itself is a bad index. In fact, with the new MSCI methodology improvements, it's become a better index. But the fundamental problem is that EAFE doesn't cover the whole international opportunity set, just like the S&P 500 doesn't cover the whole U.S. equity opportunity set, and thus, as investors put more money abroad, they need to take their international strategy to a broader and deeper benchmark, such as a broader and deeper MSCI index, which would include emerging markets, Canada and small caps; namely the new MSCI Global Investable Market Index ex-US. The same "total international" solution could be constructed with the FTSE All-World ex-US, the S&P/Citi BMI ex-US, the Russell Global ex-US or the broadest and deepest of them all—the Dow Jones Wilshire Global Total Market Index ex-US, which includes 57 countries and 98% of market capitalization. We've been doing a lot of work for the past three years around this concept at Northern Trust, and we've developed our Total International Equity Strategy solutions for both institutional and individual clients—we think the time is right for investors to finally align their portfolios with the opportunity set.

The idea is actually quite simple: Investors should take a Russell 3000 or Wilshire 5000 approach to non-U.S. investing, and to do otherwise means you're either restricting your index exposure to too narrow a slice of the pie, or worse, benchmarking your active manager with the wrong index. Active managers are already heavily invested in international small-cap and emerging markets, but if you keep EAFE as their benchmark, you're giving them a free ride to go outside the benchmark, and you're not properly measuring the investment universe.
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SURGEON GENERAL'S WARNING: Any overconfidence in your ability, willingness and need to take risk may be hazardous to your health.

[Trev H]

Ash... good catch. That was a Type O.

I corrected it to 0.19

I backed out the ER of TSM - investor shares which = 0.19.

Trev H

[Kenster1]

Additional FYI I forgot to mention...

Northern Trust has already filed for a truly comprehensive global ETF....

NETS Dow Jones Wilshire Global Total Market Index Fund

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And don't forget to see SSGA's recent announcement of an International Midcap and EM Smallcap ETF filing...see my post at...

http://www.diehards.org/forum/....hp?t=11042
_________________
SURGEON GENERAL'S WARNING: Any overconfidence in your ability, willingness and need to take risk may be hazardous to your health.

[AshKK]

[hcutrock]

I like Rick Ferri's approach. 70/30 us/in.