Have you switched from Total International to Slice & Dice or vice versa?

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tombonneau
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Have you switched from Total International to Slice & Dice or vice versa?

Post by tombonneau » Mon Jul 10, 2017 12:02 pm

So I've pretty much read through every thread on here that discusses the topic of going the Total International vs slicing and dicing between Developed & Emerging - which on its own was an extremely helpful exercise and I recommend everyone do before starting a thread. :) - but I'm still ambivalent on what to do with my international.

I'm confidant I want to tilt toward small, but when it comes to large I can see both sides to the Total International vs Developed + Emerging. One the one hand, the simplicity of the latter is tempting; on the other, between tax loss harvesting and forcing yourself to buy low in each class as you systematically rebalance, it almost seems too logical to slice and dice.

Anyway, awhile back in some behavioral psychology decision-making book I had read, one good point it made is that when you are making a decision you should seek out people who were in the same situation and ask them what they did and how they felt with their decision and what they would do over (if anything).

The crux of it being that we are really terrible at predicting how we will think/feel in the future and we are much better using as a proxy a real-life person who already gone through what you are going through.

I might in my head predict that I will be discipled and enjoy rebalancing, but then in reality its a chore. And that's not even factoring in any potential psychological drain of pouring hundreds every month into a lagging fund year after year - I might tell myself now "no problem, I'm buying emerging on sale" but will I feel that way from 2020 to 2024?

So my questions are:

-Has anyone opted to split and then after a few years realize they wish they had just kept it simple as the rebalancing and tax loss harvesting just gets to be more of a nuisance than they thought and really isn't worth the extra savings/earnings?

-Or vice versa, anyone just go with international and then later pivot to slice and dice and find that much more rewarding/satisfying?

I'm hopeful that at least some folks who because of 401k limitations have been force to switch from one way to the other could help shed some light on what the actual process would entail.

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Tyler Aspect
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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by Tyler Aspect » Mon Jul 10, 2017 11:26 pm

In my case I purchased Developed Markets Index (taxable account) many years ago because it was the least cost option. This year I purchased some shares of VXUS in a Roth IRA, but it was a relatively small amount of purchase.

In my opinion close enough is good enough.
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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by retiredjg » Tue Jul 11, 2017 7:42 am

tombonneau, whether you use total international or combine a couple of funds to get something similar is not going to matter much. Mistakes are more likely with the slice and dice. Unless you have a real reason to combine funds, I'd use Total.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by telemark » Tue Jul 11, 2017 9:28 am

I started my taxable portfolio with a slice and dice portfolio modelled after the Ultimate Buy and Hold, using

10% Vanguard Developed Market VDMIX
20% Vanguard International Value VTRIX
10% Vanguard FTSE All-World ex-US Small Cap Index VFSVX
10% Vanguard Emerging Markets Index VEIEX

A few years ago when international was down, I noticed I could convert that to Total International without paying any capital gains, so I did. Mostly because VTRIX is a managed fund and the expense ratio was 0.37% (I see it's even higher now), and I wasn't confident that the advantages of slice and dice, such as they may be, outweighed the higher expenses.

Oh, and fewer funds in taxable means less data entry at tax time, and I do appreciate that.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by tombonneau » Tue Jul 11, 2017 9:53 am

retiredjg wrote:tombonneau, whether you use total international or combine a couple of funds to get something similar is not going to matter much. Mistakes are more likely with the slice and dice. Unless you have a real reason to combine funds, I'd use Total.
The bolded above really resonates with me.

I just read a sample of A Wealth of Common Sense: Why Simplicity Trumps Complexity in Investing and even in that intro he conveys a similar theme that struck a chord. Basically, give yourself fewer failure points and fewer chances to commit a behavioral or tactical error.

Thanks so much for the input so far, all. Exactly the kind of stuff I was hoping to be reading.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by zaboomafoozarg » Tue Jul 11, 2017 9:53 am

I do 70% total international (VTI), 20% small cap international (VSS), and 10% international REITs (VNQI).

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by in_reality » Tue Jul 11, 2017 9:56 am

tombonneau wrote: I might in my head predict that I will be discipled and enjoy rebalancing, but then in reality its a chore. And that's not even factoring in any potential psychological drain of pouring hundreds every month into a lagging fund year after year - I might tell myself now "no problem, I'm buying emerging on sale" but will I feel that way from 2020 to 2024?

-Or vice versa, anyone just go with international and then later pivot to slice and dice and find that much more rewarding/satisfying?
I tax loss harvested out of Vanguard Total International into Schwab's Fundamental ETFs (Large cap, small cap, and emerging) +DGS (small emerging).

Schwab breaks their ETFs up that way so I didn't have much choice.

I haven't tax loss harvested much since then and it hasn't taken much rebalancing. I have noticed that sometime the opportunities are different -- for example I think I tax loss harvested emerging one more time that developed international.

I find it easy to stick to my target AA even though international and value haven't done as well as US tech and growth. The difference is valuations keeps growing and sometime there will be a performance reversal.

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Vanguard Total International Stock Fund

Post by Taylor Larimore » Tue Jul 11, 2017 10:16 am

Unread postby tombonneau » Mon Jul 10, 2017 12:02 pm
So I've pretty much read through every thread on here that discusses the topic of going the Total International vs slicing and dicing between Developed & Emerging
tombonneau:

Vanguard Total International Index Fund includes Developed and Emerging market stocks.

Strive for simplicity--not complexity. Read my link below.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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David Jay
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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by David Jay » Tue Jul 11, 2017 10:29 am

Tom:

What is important about any "tilt" is that you believe in it enough to convince yourself to stay the course though a decade or more of underperformance.

Chasing performance is the portfolio killer. As Bernstein says: "...mistiming the market is probably the most frequent and severe form of permanent capital loss"
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by in_reality » Tue Jul 11, 2017 11:09 am

David Jay wrote:Tom:

What is important about any "tilt" is that you believe in it enough to convince yourself to stay the course though a decade or more of underperformance.

Chasing performance is the portfolio killer. As Bernstein says: "...mistiming the market is probably the most frequent and severe form of permanent capital loss"
Yeah, and can you live with it if your tilt underperforms? I wouldn't tilt unless you are sure you can.

Even if you do choose a tilt that outperforms eventually at some point, it won't help if you have to sell out of it before it does (to derisk or meet retirement expenses for example).

I don't understand why people tilt with DFA value funds in a 529 plan with a hard deadline for withdrawals but maybe they are prepared to shovel a little in from elsewhere if value is in a decade of underperformace when they need to take the withdrawals.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by midareff » Tue Jul 11, 2017 11:29 am

Vice versa.... down to 10 funds spread across three accounts.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by BW1985 » Tue Jul 11, 2017 11:48 am

Total Int'l is enough for me.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

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David Jay
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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by David Jay » Tue Jul 11, 2017 11:51 am

David Jay wrote:Tom:

What is important about any "tilt" is that you believe in it enough to convince yourself to stay the course though a decade or more of underperformance.

Chasing performance is the portfolio killer. As Bernstein says: "...mistiming the market is probably the most frequent and severe form of permanent capital loss"
BTW, I have a small value tilt. I intend to simply into a single LS fund in retirement for ease of management by my spouse (who actuarially should outlive me).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by tombonneau » Tue Jul 11, 2017 11:52 am

in_reality wrote:
David Jay wrote:Tom:

What is important about any "tilt" is that you believe in it enough to convince yourself to stay the course though a decade or more of underperformance.

Chasing performance is the portfolio killer. As Bernstein says: "...mistiming the market is probably the most frequent and severe form of permanent capital loss"
Even if you do choose a tilt that outperforms eventually at some point, it won't help if you have to sell out of it before it does (to derisk or meet retirement expenses for example).
This is a REALLY good point and something I've thought about. I'm 40 now and if emerging hits a downswing in 5 years and is still in its trough when I'm 55 and 7-8 years away from early retirement I probably won't think the same about "staying the course" as I do today.

Honestly, I was probably 80% toward going developed + emerging when I started this, but this thread has me now probably 80% for just total international.

Cheers to the Bogleheads. :sharebeer

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by triceratop » Tue Jul 11, 2017 11:59 am

tombonneau wrote:
in_reality wrote:
David Jay wrote:Tom:

What is important about any "tilt" is that you believe in it enough to convince yourself to stay the course though a decade or more of underperformance.

Chasing performance is the portfolio killer. As Bernstein says: "...mistiming the market is probably the most frequent and severe form of permanent capital loss"
Even if you do choose a tilt that outperforms eventually at some point, it won't help if you have to sell out of it before it does (to derisk or meet retirement expenses for example).
This is a REALLY good point and something I've thought about. I'm 40 now and if emerging hits a downswing in 5 years and is still in its trough when I'm 55 and 7-8 years away from early retirement I probably won't think the same about "staying the course" as I do today.

Honestly, I was probably 80% toward going developed + emerging when I started this, but this thread has me now probably 80% for just total international.

Cheers to the Bogleheads. :sharebeer
There is a difference between slicing and dicing the components of international, and tilting. One can own developed + emerging markets in their correct market weights, individually, and achieve the same performance as total international. It is only when you start to weight developed more or less relative to emerging that your risk profile changes relative to total international. This latter thing is what is called tilting.

In other words, going from being 80% sure of doing developed + emerging is not actually a significant shift to 80% in favor of using total international. It could be the same thing!
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by tombonneau » Tue Jul 11, 2017 12:03 pm

triceratop wrote:
tombonneau wrote:
in_reality wrote:
David Jay wrote:Tom:

What is important about any "tilt" is that you believe in it enough to convince yourself to stay the course though a decade or more of underperformance.

Chasing performance is the portfolio killer. As Bernstein says: "...mistiming the market is probably the most frequent and severe form of permanent capital loss"
Even if you do choose a tilt that outperforms eventually at some point, it won't help if you have to sell out of it before it does (to derisk or meet retirement expenses for example).
This is a REALLY good point and something I've thought about. I'm 40 now and if emerging hits a downswing in 5 years and is still in its trough when I'm 55 and 7-8 years away from early retirement I probably won't think the same about "staying the course" as I do today.

Honestly, I was probably 80% toward going developed + emerging when I started this, but this thread has me now probably 80% for just total international.

Cheers to the Bogleheads. :sharebeer
There is a difference between slicing and dicing the components of international, and tilting. One can own developed + emerging markets in their correct market weights, individually, and achieve the same performance as total international. It is only when you start to weight developed more or less relative to emerging that your risk profile changes relative to total international.

In other words, going from being 80% sure of doing developed + emerging is not actually a significant shift to 80% in favor of using total international. It could be the same thing!
Sorry I didn't think to make the distinction. My plan would be to tilt emerging at 2:1 developed:emerging ratio. So 33% emerging which is roughly 2x total international ratio.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by jbolden1517 » Wed Jul 12, 2017 5:20 am

tombonneau wrote: This is a REALLY good point and something I've thought about. I'm 40 now and if emerging hits a downswing in 5 years and is still in its trough when I'm 55 and 7-8 years away from early retirement I probably won't think the same about "staying the course" as I do today.

Honestly, I was probably 80% toward going developed + emerging when I started this, but this thread has me now probably 80% for just total international.
I think you should consider the date you care about for needing to completely cash out is not when you retire but when you die. If you are going into early retirement then you going to need the portfolio to be growing well into retirement to insure a long term real draw at a reasonable percentage. Even 3% on a 40+ year draw has a high failure rate if your retirement allocation is too conservative.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by jbolden1517 » Wed Jul 12, 2017 5:36 am

Not sure exactly what you want to ask but I think I qualify. Around 1997 I start making enough money to start saving. USA stock valuations are already high. But valuations in Asia get really good after the crisis. I'm very comfortable with a market weight portfolio and overweight VPACX. I hold it does not so hot. I'm not paying attention after the early 2000s because I have a portfolio I'm comfortable with for the long term. This last well over a decade. The small Japan stock market has a ton of growth. The large Japanese companies stay low profit as the government and Japanese Keiretsu focus on social stability not investor return. I wake up and am totally horrified to discover that my VPACX has sat in assets like this passively. I've been lending money to Japanese consumers at pretty much 0% rates for over a decade. I consider what VPACX did to be almost financial mismanagement on Vanguard's part. It never occurred to me they would be this extreme in their beliefs in passively cap weighting to hold investments designed to lose money.

There are lots of good alternatives now that didn't exist then. So I switch towards small and value similar to my domestic. Large growth exposure becomes something I'll take on only on a case by case basis as an active play (though I might use a passive vehicle to make that play).

Similar problems in the EM space as well though I wasn't as exposed to cap weighed stupidity because in a 401k I could get into what (at the time) was a good value EM fund (loaded but no load for 401k) though the ER was a bit high (relative). I liked the fund so I didn't sell when I left the company and was in EM value earning a good return through those quiet years.

So I guess I qualify. Ask away.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by harvestbook » Wed Jul 12, 2017 7:37 am

Like Telemark above's illustration, I use a Merriman Ultimate Buy and Hold portfolio using Vanguard funds. I've only been doing it a few years but I didn't really like the high expense ratio of the International Value (VTRIX) and recently combined it with Developed Markets in my IRA in order to get the Total International Value Fund in Admiral Shares and lower my ER. That was mainly because I now have a solo 401(K) using LifeStrategy Growth and won't be contributing to the IRA anytime soon, if ever. That was a cost decision more than any doubts about the viability of a value tilt. My EM tilt is about 11 percent.

I still keep the tilts in my brokerage account. I believe in them, but I am not convinced they really make a ton of difference. I obviously expect a small bit of outperformance over 20 years but I don't think it's a make-or-break allocation for my goals. It's simple enough to manage and intellectually interesting but one day I may choose even more simplification. Honestly, in the grand scheme of things, this type of slice-and-dice is way down the list of Things That Matter. Consistent savings with a specific plan and goal is far more important. best to pick a path you believe in and just move forward. Good luck.
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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by Taylor Larimore » Wed Jul 12, 2017 8:41 am

I use a Merriman Ultimate Buy and Hold portfolio using Vanguard funds
.
harvestbook:

Look at this: http://www.marketwatch.com/lazyportfolio.

Consider this: viewtopic.php?t=88005

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by tombonneau » Wed Jul 12, 2017 8:45 am

telemark wrote:I started my taxable portfolio with a slice and dice portfolio modelled after the Ultimate Buy and Hold, using

10% Vanguard Developed Market VDMIX
20% Vanguard International Value VTRIX
10% Vanguard FTSE All-World ex-US Small Cap Index VFSVX
10% Vanguard Emerging Markets Index VEIEX

A few years ago when international was down, I noticed I could convert that to Total International without paying any capital gains, so I did. Mostly because VTRIX is a managed fund and the expense ratio was 0.37% (I see it's even higher now), and I wasn't confident that the advantages of slice and dice, such as they may be, outweighed the higher expenses.

Oh, and fewer funds in taxable means less data entry at tax time, and I do appreciate that.
Telemark, this is exactly the type of viewpoint I was looking for: someone who had split international - this is exactly what my funds would be minus VTRIX Value - but then migrated to Total.

Sounds like you are not missing much from your decision.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by tombonneau » Wed Jul 12, 2017 8:47 am

harvestbook wrote: I still keep the tilts in my brokerage account. I believe in them, but I am not convinced they really make a ton of difference. I obviously expect a small bit of outperformance over 20 years but I don't think it's a make-or-break allocation for my goals. It's simple enough to manage and intellectually interesting but one day I may choose even more simplification. Honestly, in the grand scheme of things, this type of slice-and-dice is way down the list of Things That Matter. Consistent savings with a specific plan and goal is far more important. best to pick a path you believe in and just move forward. Good luck.
Thanks for the thougts. I'm becoming more and more of a believer in the bolded.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by GAAP » Fri Jul 14, 2017 9:35 am

I am by nature in favor of slice and dice. However, I have fairly recently changed for two reasons. First, long term concerns about cognitive decline. Second, because it is much easier to explain to my wife -- who is scared of all non-real estate investments due to experiences in her formative financial years.

I actually use total world for all stock, so I'm taking farther than the OP proposed . FWIW, I find the simplicity is a good match with my tendencies toward laziness...

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by hoppy08520 » Fri Jul 14, 2017 10:45 am

zaboomafoozarg wrote:I do 70% total international (VXUS), 20% small cap international (VSS), and 10% international REITs (VNQI).
I'm doing almost the same, except my target percentages are 50/40/10. I did more of a SC tilt after being convinced that a smaller SC slice wouldn't make much of a difference, so I went just a little bigger on small. Especially when you consider that VSS/VFSVX isn't really all that small-cap - according to Morningstar, it's 2% large, 66% mid, 32% small.

I started this tilt 3+ years ago, and I'm not sure how much of a difference it would have made compared to doing just holding Total International (VXUS/VTIAX/VGTSX), but I'm happy with this split.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by likegarden » Fri Jul 14, 2017 11:22 am

I agree with Mr. Bogle's explanation that International exposure is not needed for US investors because most US large companies have international exposure already. Being more than 10 years into retirement, I am moving my portfolio slowly to Total Stock Market and Total Bond Market index funds.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by triceratop » Fri Jul 14, 2017 11:28 am

Taylor Larimore wrote:
I use a Merriman Ultimate Buy and Hold portfolio using Vanguard funds
.
harvestbook:

Look at this: http://www.marketwatch.com/lazyportfolio.

Consider this: viewtopic.php?t=88005

Best wishes.
Taylor
This has been discussed before, and it has been pointed out before that this table compares portfolios across a short time span with varying levels of bonds as well as international (which has recently underperformed) against the S&P500 which is less diversified. It is not appropriate to judge a portfolio by comparing to a 100% U.S. stock portfolio, especially if one of the portfolios has 40% bonds. It's a completely fallacious argument.

Here is what one member said the last time this was posted:
saltycaper wrote:
Taylor Larimore wrote:simplesauce:

Paul Merriman wrote: "Compare the audience for Bogle's recommendations to ours."

Bogleheads can compare Mr. Merriman's "Fund Advice" portfolio HERE.

Best wishes.
Taylor
Taylor has posted this link dozens of times (literally). It's often in the context of underscoring the underperformance of either a "slide and dice" or "tilted" portfolio. On more than one occasion, someone has pointed out that the relative performance of these portfolios does not suggest that an S&D or tilted portfolio has underperformed another portfolio due to the S&D or the tilting, because the composition of the portfolios differs in other ways. (The answer to the debate might be in Taylor's favor, or not, but it doesn't matter, because couched in this way the logic is bogus.) Nevertheless, Taylor continues to post this link in such contexts as this one. Posting this link in such contexts is, in my opinion, a disservice to the readers of this forum, misleading, and intellectually dishonest, and it undermines the credibility of the poster.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by tombonneau » Fri Jul 14, 2017 12:34 pm

I really appreciate all the feedback from both sides of the aisle on this. After swaying from S&D to simple Total International I'm back to S&D with a 50/25/25 Developed/Emerging/Small split of VG Index Funds.

The main thrust behind my choice is that distilling the entire world minus the US into one fund always felt a little *too* simple and Ameri-centric to me. How can you truly capture all of our great big world's stocks in one fund? Well. You can't.

Total Stocks
  • Total International 6166
  • Developed 3820
  • Emerging 4574
  • Small 3493
So by combining D, E & S you almost double the number of stocks in Total International. People like to say you can't get more diversified than holding the entire market. I would agree. You can't. But in this case you also can't do it with just one fund. :)

Once I realized that it made my decision much clearer. A few other points I really liked were:
  • Emerging's lower correlation to US and Developed
  • At the 2:1 ratio, the 0.07 Developed and 0.14 Emerging ER vs. 0.11 Total gives you, well, not quite a free lunch on the costs of Large Foreign, but maybe a free sample in the Costco frozen food aisle
  • Annual rebalance opportunities and tax loss harvesting (as D & E are in taxable for me)
  • China/Taiwan seem woefully underrepresented in Total only. Their existence is negligible which just doesn't feel right to me. And, well, it's my decision. :). At my portfolio allocation I think they will be about 3-4% of equity which is still no great shakes but at least it's something
Really the only thing I struggled with was the simplicity of only having one fund for my large foreign, if only to save me from myself in that I might bail on emerging, but I've read dozens and dozens of behavioral economics and neuroscience books for the last 10 years, so I think I'm well equipped to stay the course.

And while simple is nice and in-line with my newfound minimalist lifestyle, at my age (40) I want to take some controlled and thought-out risk and three international funds is simple enough for my liking. As I get older and approach retirement, I will certainly consolidate but now does not feel like the time for me to go the super simple route.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by katzmandu » Fri Jul 14, 2017 12:40 pm

FTIPX and done. Up 14.6% for the year. Doesn't make me a genius as a rising tide lifts all boats, but simple and easy.

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Re: Have you switched from Total International to Slice & Dice or vice versa?

Post by zaboomafoozarg » Fri Jul 14, 2017 10:56 pm

hoppy08520 wrote:
zaboomafoozarg wrote:I do 70% total international (VXUS), 20% small cap international (VSS), and 10% international REITs (VNQI).
I'm doing almost the same, except my target percentages are 50/40/10. I did more of a SC tilt after being convinced that a smaller SC slice wouldn't make much of a difference, so I went just a little bigger on small. Especially when you consider that VSS/VFSVX isn't really all that small-cap - according to Morningstar, it's 2% large, 66% mid, 32% small.
I considered that in the past but really don't have the non-401k assets to pull it off. So for now I've just kept things the same.

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