Foreign stocks as a % of your stock asset allocation

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mrsub
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Foreign stocks as a % of your stock asset allocation

Post by mrsub » Tue Jul 02, 2013 8:02 pm

Hi everyone, I am reading up as much as possible on trying to decide what is a typical allocation to foreign stocks to ones portfolio.

For example, if you want to have 60% stocks, 40% bonds - out of that 60% stocks, how much are domestic and how much are foreign?

I see many examples of portfolio reviews but all the %'s are different with some thinking it should be as high as 50/50 and some much less. Is there a correct answer here? Is there research to back up the decisions for the choices you have made personally in your decision? (If so, please point me in the right direction)

What made you choose what you did?

On the same note, do you also allocate to foreign bonds? Is your thinking the same?

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Re: Foreign stocks as a % of your stock asset allocation

Post by VTXVX » Tue Jul 02, 2013 8:12 pm

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Re: Foreign stocks as a % of your stock asset allocation

Post by mrsub » Tue Jul 02, 2013 8:14 pm

Target 2015 only has 15.7%?

https://personal.vanguard.com/us/funds/ ... =INT#tab=2

Did you also mimic their International Bond allocation?

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Re: Foreign stocks as a % of your stock asset allocation

Post by VTXVX » Tue Jul 02, 2013 8:22 pm

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Re: Foreign stocks as a % of your stock asset allocation

Post by Quasimodo » Tue Jul 02, 2013 8:29 pm

My stock allocation is entirely with Vanguard's Total World Stock Index (symbol VT), which has about a 50% allocation to foreign stocks. I chose this fund because it represents a cross section of the worldwide stock market.

I don't own any foreign bonds, probably because I'm not sophisticated enough. That sounds contradictory somehow, but there you are.

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Re: Foreign stocks as a % of your stock asset allocation

Post by Ged » Tue Jul 02, 2013 8:34 pm

I use 30% because I've seen a number of efficient frontier plots which seem to indicate it's a good choice.

Of course this is quite arbitrary because these plots vary all over the place. But given the history of the US outperforming most of the developed countries I'm reluctant to go higher.

I'm interested in other opinions though.

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Re: Foreign stocks as a % of your stock asset allocation

Post by Rick Ferri » Tue Jul 02, 2013 8:38 pm

Although the US is only about 40% of the global equity market by valuation, a 30% allocation to foreign stocks by US investors has been a good middle-of-the-road allocation. I believe this is still warranted. The US has been leading the rest of the developed world in recent years, and I don't see much changing in the near future.

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Re: Foreign stocks as a % of your stock asset allocation

Post by RNJ » Tue Jul 02, 2013 8:49 pm

50% foreign stock allocation, 1/3 of total portfolio. At the time I made the move to passive investing the US market had really taken off and international and emerging markets were lagging. I had done enough reading to stave off my urge to chase performance and went with the higher foreign allocation as the valuations (p/b, p/e, p/s, etc.) seemed to offer a higher expected future return - these markets seemed "cheaper".

Since my switch, I've added $0 to my initial US allocation - all new equity-targeted money has gone to purchase foreign shares (developed and emerging). I've had zero issue with tracking error and I'm content with my decision.

As I tend to see my bond allocation as store of relative safety (arguable, lately), I have no allocation to foreign bonds. I'm in US TIPS, US Intermediate Treasuries, and Limited Term municipals.

Good luck.

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Re: Foreign stocks as a % of your stock asset allocation

Post by mrsub » Tue Jul 02, 2013 8:52 pm

Rick Ferri wrote:Although the US is only about 40% of the global equity market by valuation, a 30% allocation to foreign stocks by US investors has been a good middle-of-the-road allocation. I believe this is still warranted. The US has been leading the rest of the developed world in recent years, and I don't see much changing in the near future.

Rick Ferri
Would this change for non-US investors? (of which I am)

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Re: Foreign stocks as a % of your stock asset allocation

Post by mrsub » Tue Jul 02, 2013 8:53 pm

Tazdog wrote:It's approximately 30% of equities (.3 * 53.97% = 16.19%) I don't have any bond funds, I use a fixed account paying 3.5% in lieu of bond funds.
Is this what most people here are doing in lieu of their domestic bond allocation?

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Re: Foreign stocks as a % of your stock asset allocation

Post by VTXVX » Tue Jul 02, 2013 8:57 pm

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Re: Foreign stocks as a % of your stock asset allocation

Post by abuss368 » Tue Jul 02, 2013 9:40 pm

Vanguard used 20% of equity years ago, then increased that to 30% of equity. A few years ago they published a research report recommending a 20% - 40% of equity with a middle of the road allocation of 30% of equity.

Lately however, they appear to be recommending 30% of equity "as a starting point" up to world weights.

As I posted in a few other threads recently, I am not going to be surprised if Vanguard eventually increases it again. Besides they added international bonds recently.
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Re: Foreign stocks as a % of your stock asset allocation

Post by gkaplan » Tue Jul 02, 2013 9:46 pm

Fifty-five percent
Gordon

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Re: Foreign stocks as a % of your stock asset allocation

Post by nedsaid » Tue Jul 02, 2013 10:09 pm

I have read the Vanguard white paper on this. The optimum diversification risk vs. reward seems to be in the 20%-30% range. Going above 30% doesn't help much. Of course these efficient frontiers are based on past data and correlations between asset classes change all the time. I think that is a good number.

Depending on how the markets do, I have been about 25% to 27% of my stocks in the International markets.

I think anywhere between 20% and 50% is fine. It is a matter of taste and investment philosophy.
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Re: Foreign stocks as a % of your stock asset allocation

Post by bottomfisher » Tue Jul 02, 2013 10:31 pm

I'm about 50/50 US/Intl allocation. A bit more int'l allocation recently as a result of slightly better int'l valuations relative to US. Initially, I was planning on passing on the new Vg international and emerging market bond funds. But I gave in due to my concern for lower expected returns due to the current low yield environment that may not allow me to meet my long term goals through less risky domestic bond funds. I'm a long way from retirement so I can handle the additional risk.

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Re: Foreign stocks as a % of your stock asset allocation

Post by Kalo » Tue Jul 02, 2013 10:48 pm

I'm at 20% of equity portion in international. And that's an increase from where I used to be. I know it's on the low end of what a lot of Bogleheads do.

I just can't shake the notion that not all economies are created equal. I don't understand why the rest of the world should suddenly start catching up to the US after centuries of under-performance. Have they suddenly decided to become capitalists? They never were before.

Europe (Euro Zone) thinks it's a good idea to share a currency, without having the member countries able to issue debt in that currency. I don't understand how that can work. It doesn't seem to be working.

Japan doesn't seem to have a consumer base that is willing or able to spend enough money to support businesses.

I don't trust China's official numbers.

Of course, the US may be changing from a very impure form of capitalism to something even more watered down, who knows?

I've read a lot about why I should hold international, and I make a concession to those arguments by holding 20% of equities. Maybe I'll regret not holding more some day. I've thought about bumping it up to 30% of equities. I think reading John Bogle's books early on gave me a feeling it was not that important.

The one argument in favor of it that I buy the most is holding it as a diversifier.

It irks me and actually invokes a feeling in me of being cheated, that some countries don't allow me to participate fully in my stock holdings as a foreigner. (I forget the mechanics of this but they hold something back from foreign stockholders.)

The world is not your home, and it's not a great big happy capitalistic world economy out there that we all share. It's a hodgepodge of nonsense that makes no sense at all. Any foreign government can confiscate the company that you are invested in if it's not in your homeland, and you have no recourse.

International investments are not the same as domestic. It's a different animal, and I don't quite trust it. It feels better to me as a US citizen to invest in stocks and bonds that originate in my homeland.

This all sounds silly even to me (logically). But instinctively, this is how I feel, which does matter when it comes to investing your hard earned capital.

Kalo
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Re: Foreign stocks as a % of your stock asset allocation

Post by bpp » Wed Jul 03, 2013 7:32 am

mrsub wrote:
Rick Ferri wrote:Although the US is only about 40% of the global equity market by valuation, a 30% allocation to foreign stocks by US investors has been a good middle-of-the-road allocation. I believe this is still warranted. The US has been leading the rest of the developed world in recent years, and I don't see much changing in the near future.

Rick Ferri
Would this change for non-US investors? (of which I am)
I really hope Rick Ferri replies to this, as I would like to hear what he has to say on the subject.

I split my stocks 50/50 Japan/non-Japan. Market weights would make it 90% non-Japan, which seems too much (though that would have been a winning ratio for the past 20-some years). At 50/50, I figure I am, to first order, indifferent to whether the Japanese market does better or worse than the rest of the world, and also to whether the Japanese currency goes up or down relative to the rest of the world's currencies. I'll come out the same either way.

I also split my bonds 50/50 Japan/non-Japan (unhedged), for the same know-nothing reasons. Pure volatility minimization would indicate a much lower non-Japan bond allocation, but 50/50 is good enough, and I don't feel clever enough to try do anything more theoretically "optimal."

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Re: Foreign stocks as a % of your stock asset allocation

Post by Grt2bOutdoors » Wed Jul 03, 2013 7:53 am

35% International was my allocation in IPS, currently at 37% - on the way to 40% per my newly revised AA after mulling it over for quite some time.
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Re: Foreign stocks as a % of your stock asset allocation

Post by galao888 » Wed Jul 03, 2013 8:32 am

mrsub wrote:
Rick Ferri wrote:Although the US is only about 40% of the global equity market by valuation, a 30% allocation to foreign stocks by US investors has been a good middle-of-the-road allocation. I believe this is still warranted. The US has been leading the rest of the developed world in recent years, and I don't see much changing in the near future.

Rick Ferri
Would this change for non-US investors? (of which I am)
Well, I am from Europe, so I wonder what is 'foreign' and what is 'domestic' (e.g. my home country)?

My personal definition within my equity portion is a 1/3 each allocated across domestic (in my case European equities), US and Emerging Markets. Sounds logic to me and feels right. Say you live in Switzerland, I cannot see the point of having 50%plus exposure to Swiss equties and the rest in international.

Interested what other non-US investors think.

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Re: Foreign stocks as a % of your stock asset allocation

Post by Joe S. » Wed Jul 03, 2013 8:42 am

mrsub wrote:
Rick Ferri wrote:Although the US is only about 40% of the global equity market by valuation, a 30% allocation to foreign stocks by US investors has been a good middle-of-the-road allocation. I believe this is still warranted. The US has been leading the rest of the developed world in recent years, and I don't see much changing in the near future.

Rick Ferri
Would this change for non-US investors? (of which I am)
This would definitely change for non-US investors. Because of currency fluctuations, US stocks are less volatile than foreign stocks, so for a US investor it makes sense to tilt toward US stocks. People in other countries should usually tilt toward their home country stocks.

For British investors, Vanguard recommends a higher British exposure and a lower U.S. exposure. Since I don't know what country you live in, it is difficult to give advice.

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Re: Foreign stocks as a % of your stock asset allocation

Post by ofcmetz » Wed Jul 03, 2013 10:09 am

Tazdog wrote:I went with 30% because that's what the Vanguard Target Date Retirement Funds use.

Ditto. Also Like Rick said this seemed like a good middle of the road choice.
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Re: Foreign stocks as a % of your stock asset allocation

Post by mrsub » Wed Jul 03, 2013 10:11 am

I am based in NZ although own no NZ stocks at this time. As a new resident here I earn my money in USD and convert over as necessary my currency when the exchange rate is favorable.

The markets here are very small in comparison to the US or the rest of the world and that is why I am hesitant to invest in them with any great weighting if I invest in them at all. Another way to look at it is - since I am already invested in this country with everything else (life, property, currency holdings, etc), would it not make sense to diversify outside the country?

Right now I invest in the US markets because they are the strongest and best performing. Also, having the securities priced in the world's reserve currency gives them an added advantage is this crazy world we are in - at least for the time being.

I think if I were to buy into the International stock funds that would already include a weighting to NZ anyways so technically I am getting some exposure - I would be very curious to see how other non-US based investors view their domestic markets and how they justify their domestic allocations? Is it just because your expenses are in the local currency and you want to avoid currency risk?

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Re: Foreign stocks as a % of your stock asset allocation

Post by magneto » Wed Jul 03, 2013 10:27 am

UK investor here.

Stocks are :-
1/3rd UK
2/3rds World

With UK at about 8% of World Cap seems sensible to boost non domestic. How much is a continuing question.
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Re: Foreign stocks as a % of your stock asset allocation

Post by LH » Wed Jul 03, 2013 10:44 am

50 50 us foriegn.

I would have some foriegn stock.

No right answer on exact percentage.

Considered foriegn bonds now, will possibly put in as bonds go higher in portfolio.

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Re: Foreign stocks as a % of your stock asset allocation

Post by allsop » Wed Jul 03, 2013 11:12 am

Swedish investor:

3% Swedish stocks
97% Foreign

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Re: Foreign stocks as a % of your stock asset allocation

Post by Rick Ferri » Wed Jul 03, 2013 11:52 am

mrsub wrote:
Rick Ferri wrote:Although the US is only about 40% of the global equity market by valuation, a 30% allocation to foreign stocks by US investors has been a good middle-of-the-road allocation. I believe this is still warranted. The US has been leading the rest of the developed world in recent years, and I don't see much changing in the near future.

Rick Ferri
Would this change for non-US investors? (of which I am)
It depends on where you intend to spend the money. If your living outside the US now but plan on retiring here, then 70% in US and 30 foreign still makes sense.

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Re: Foreign stocks as a % of your stock asset allocation

Post by golfallday » Wed Jul 03, 2013 12:06 pm

I'm comfortable with 15% international (35% VIIIX; 10% Russell 2000 Index; 10% VGSLX; 30% VBMPX). Still amazed that Mr Bogle sees no need for an international fund. He reasons the SP500 or TSM have enormous global footprints. In The Investor's Manifesto, Dr Bernstein advises against the World Index fund (and it's weighting if you Frankenstein your portfolio); too foreign-heavy for him. Me too. Always interesting to see the diverse opinions (from very brainy investors) regarding an appropriate foreign allocation.
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Re: Foreign stocks as a % of your stock asset allocation

Post by Blues » Wed Jul 03, 2013 12:09 pm

About 24% international. Anywhere from 20 to 30% works for me.
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Re: Foreign stocks as a % of your stock asset allocation

Post by IlliniDave » Wed Jul 03, 2013 12:40 pm

About 30% for me.
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Re: Foreign stocks as a % of your stock asset allocation

Post by feh » Wed Jul 03, 2013 1:42 pm

33% of equities is int'l.

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Re: Foreign stocks as a % of your stock asset allocation

Post by HongKonger » Wed Jul 03, 2013 2:27 pm

About 60% of equities.

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Re: Foreign stocks as a % of your stock asset allocation

Post by whaleknives » Wed Jul 03, 2013 5:38 pm

For those who like visual aids, from the Wiki:

Image

39 years of condensed data is impressive, but what's happened since 2008?
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Re: Foreign stocks as a % of your stock asset allocation

Post by EternalOptimist » Wed Jul 03, 2013 7:52 pm

I'm at roughly 15-20%, that's enough for me.
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Re: Foreign stocks as a % of your stock asset allocation

Post by Noobvestor » Thu Jul 04, 2013 12:51 am

Rick Ferri wrote:Although the US is only about 40% of the global equity market by valuation, a 30% allocation to foreign stocks by US investors has been a good middle-of-the-road allocation. I believe this is still warranted. The US has been leading the rest of the developed world in recent years, and I don't see much changing in the near future.

Rick Ferri
I didn't realize you advocated market-timing US/intl allocations ;)
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Re: Foreign stocks as a % of your stock asset allocation

Post by Rick Ferri » Thu Jul 04, 2013 1:45 pm

I'm practicing to be a hedge fund manager in my next life. It pays a lot more than managing index fund portfolios and I would get on television all the time. It would be all about me, me, me!

Seriously, I've held portfolios at 70/30 for 20 years and see no immediate need to change - but maybe someday I will see a need. Who knows?

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Re: Foreign stocks as a % of your stock asset allocation

Post by EternalOptimist » Fri Jul 05, 2013 7:01 am

Rick Ferri wrote:I'm practicing to be a hedge fund manager in my next life. It pays a lot more than managing index fund portfolios and I would get on television all the time. It would be all about me, me, me!

Seriously, I've held portfolios at 70/30 for 20 years and see no immediate need to change - but maybe someday I will see a need. Who knows?

Rick Ferri
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Re: Foreign stocks as a % of your stock asset allocation

Post by Boglenaut » Fri Jul 05, 2013 8:11 am

I keep 2/3 of equity in US, 1/3 in International ex-US.

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Re: Foreign stocks as a % of your stock asset allocation

Post by YDNAL » Fri Jul 05, 2013 8:12 am

mrsub wrote:Hi everyone, I am reading up as much as possible on trying to decide what is a typical allocation to foreign stocks to ones portfolio.

For example, if you want to have 60% stocks, 40% bonds - out of that 60% stocks, how much are domestic and how much are foreign?
Mrsub,

We don't know where you live nor where you spend your money. The World's Markets tell you 48/52 US/non-US currently. I said currently because this relationship moves all the time, and you shouldn't think of it as static numbers.
Link: https://personal.vanguard.com/us/funds/ ... =INT#tab=2
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Re: Foreign stocks as a % of your stock asset allocation

Post by ruralavalon » Fri Jul 05, 2013 8:27 am

mrsub wrote:I see many examples of portfolio reviews but all the %'s are different with some thinking it should be as high as 50/50 and some much less. Is there a correct answer here? Is there research to back up the decisions for the choices you have made personally in your decision? (If so, please point me in the right direction)
About 30% of equities in international is fairly typical, anywhere in the range of 20 - 40% is probabaly OK. As you note, the views on this are all over the map. So there is no "correct answer". Our current allocation is about 32% of equities.

Here is some reading on the subject:
Vanguard Paper: Considerations for investing in non-U.S. equities
Forum Poll: What is your equity allocation to international?
Forum Discussion: Jack Bogle on International Investing at Bogleheads 11
Wiki article link: Domestic/International
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Re: Foreign stocks as a % of your stock asset allocation

Post by WHL » Fri Jul 05, 2013 11:24 am

I'm 50% us, 25% int, 25% bond. I think it works out to be something like 34% of equities, not sure. My percentages are also off by a bit but I don't really care.

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Re: Foreign stocks as a % of your stock asset allocation

Post by englishgirl » Fri Jul 05, 2013 11:39 am

I don't believe there is a "correct" answer, as nobody can predict the future as to which allocation will be best going forward.

I am at 50:50 US:non-US. But that's mostly because I like round numbers. And I am a bit constrained by an old account I have floating around that is proving hard to move. If I had free reign over all my accounts, I would pick Total World Stock (or whatever it is called) and have market weight. Why do I have it so high? Because I didn't start out life in the US - I don't feel the need to be any more US-centric than I already am.

As for international bonds - not yet. Right now the Vanguard fund is a little expensive (isn't there a purchase fee?), and I've no real desire to complicate my portfolio. I've already got TBM and TIPs, and don't really want to add a third bond fund. But, who knows. Maybe I'll ditch TIPs in favor of international bonds. Maybe Vanguard will come out with the ultimate bond fund which contains all three.

In my investing dreamland, there'd be a balanced fund available composed of total world stock and total world bond. And I could be done with one fund (in one account - enough with all these 401k, IRA and other accounts!). The one fund to rule them all....
Sarah

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Re: Foreign stocks as a % of your stock asset allocation

Post by zaboomafoozarg » Fri Jul 05, 2013 12:30 pm

WHL wrote:I'm 50% us, 25% int, 25% bond. I think it works out to be something like 34% of equities, not sure. My percentages are also off by a bit but I don't really care.
Same here! It is precisely 33.33333....% :D

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Re: Foreign stocks as a % of your stock asset allocation

Post by AppelSienSapFrietjes » Fri Jul 05, 2013 2:00 pm

englishgirl wrote:In my investing dreamland, there'd be a balanced fund available composed of total world stock and total world bond. And I could be done with one fund (in one account - enough with all these 401k, IRA and other accounts!). The one fund to rule them all....
What about ETFs covering the MSCI ACWI or MSCI ACWI IMI (which includes also some, but not much, small caps) index? That is a "total world stock" ETF as far as I know. This might be interesting for you?

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Re: Foreign stocks as a % of your stock asset allocation

Post by max12377 » Fri Jul 05, 2013 2:19 pm

I went from 17% to 20 % so the Vanguard portfolio watch would stop squawking at me to be between 20 & 40 !

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Re: Foreign stocks as a % of your stock asset allocation

Post by englishgirl » Fri Jul 05, 2013 2:53 pm

AppelSienSapFrietjes wrote:
englishgirl wrote:In my investing dreamland, there'd be a balanced fund available composed of total world stock and total world bond. And I could be done with one fund (in one account - enough with all these 401k, IRA and other accounts!). The one fund to rule them all....
What about ETFs covering the MSCI ACWI or MSCI ACWI IMI (which includes also some, but not much, small caps) index? That is a "total world stock" ETF as far as I know. This might be interesting for you?
Thanks. But there's already a Vanguard Total World Stock Index fund. That'd be enough for me if I could use it. But no Total World Bond Index. Yet.
Sarah

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Re: Foreign stocks as a % of your stock asset allocation

Post by Streptococcus » Fri Jul 05, 2013 3:10 pm

US 60% international 40%;

I think most bogleheads are at 30%. There is no right answer nor is there any scientific evidence that any percentage will yield a greater return in the future. Some people allocate low internationally because they feel more comfy with domestic stocks. Other people allocate heavily internationally because they believe that the US economic is going to shrink to a smaller piece of the global market or that the US dollar is going to lose ground.

I stick with 40% because i agree with a recent WAPO article that stated, it is not the US that is declining; it is the rest of the world that is catching up too quickly.

Cash
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Re: Foreign stocks as a % of your stock asset allocation

Post by Cash » Fri Jul 05, 2013 6:44 pm

Whatever Total World is. I don't try to predict the future.

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gnosis
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Re: Foreign stocks as a % of your stock asset allocation

Post by gnosis » Fri Jul 05, 2013 6:54 pm

Rick Ferri wrote:It depends on where you intend to spend the money. If your living outside the US now but plan on retiring here, then 70% in US and 30 foreign still makes sense.

Rick Ferri
What's recommended for an expat retired overseas in, say, an emerging market such as Thailand, and with all of their investments in the US (and all Vanguard funds of course :happy )? What ratio for International/US, and what ratio for Emerging/Developed?

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sperry8
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Re: Foreign stocks as a % of your stock asset allocation

Post by sperry8 » Fri Jul 05, 2013 11:33 pm

Streptococcus wrote:US 60% international 40%;

I think most bogleheads are at 30%. There is no right answer nor is there any scientific evidence that any percentage will yield a greater return in the future. Some people allocate low internationally because they feel more comfy with domestic stocks. Other people allocate heavily internationally because they believe that the US economic is going to shrink to a smaller piece of the global market or that the US dollar is going to lose ground.

I stick with 40% because i agree with a recent WAPO article that stated, it is not the US that is declining; it is the rest of the world that is catching up too quickly.
I'm at 41% International. It's come down from 48% though as foreign has underperformed the past few years (in US dollars). But that's the point of diversification and I believe there will be times when the opposite is true and foreign outperforms. I am currently considering rebalancing and bringing it back up to 45% or so.
Humbling BH contest results: 2017: #516 of 647 | 2016: #121 of 610 | 2015: #18 of 552 | 2014: #225 of 503 | 2013: #383 of 433 | 2012: #366 of 410 | 2011: #113 of 369 | 2010: #53 of 282

Trev H
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Re: Foreign stocks as a % of your stock asset allocation

Post by Trev H » Sat Jul 06, 2013 6:14 am

The right answer is to keep it simple, yet diversify globally, and include 3 factor diversification (hold Market, Size and Price).

25% Large Cap Index
25% Small Value Index
25% International Value (Intl Large Value including EM LV)
25% FTSE X-US (Intl Small Market including EM Small)

That's how I do it anyway...

Half US, Half International, Half Large, Half Small, Half Market, Half Value

Very easy to rebalance and maintain.

Trev H

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