I reduced my exposure to US stocks before the correction.

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Brian1995
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I reduced my exposure to US stocks before the correction.

Post by Brian1995 » Sun Feb 18, 2018 1:45 pm

I'm a huge fan of this forum!

My portfolio has been pretty conservative for my age (I'm 43yo): 50/50.

I've found the books written by John Bogle incredibly inspiring, clear and well written. I know that Mr. Bogle is not a fan of investing in overseas market because US companies do make money abroad anyway.

A crucial piece of advice of his is: "stay the course!".

I must say, however, that I have been uneasy about how high the valuations of US stocks have been over the last few months. The Schiller P/E ratio (35 years of profit) has been a red flag to me for some time.

So I did something unorthodox which was to reduce my exposure to US stocks **before** the recent correction. I take no particular pride in that. It was just a matter of feeling more confortable. For now, I am glad I did because I don't see much room for the US bull market given current valuations.

My current portfolio is:

- 56% bonds (about half in Intermedium Term Grade Bonds; and the other half in TIPS)
- 44% stocks (20% emerging; 12% developed; 12% US)

It is estimated that 80% of global growth will take place in EM over the next 10 years, hence my 20% on EM.

Although dividends from developed markets are appreciated, I don't see much growth potential on a long term perspective, hence my 12% exposure.

I determined my exposure to US stocks based on the fact that Jack Bogle himself doesn't see domestic stocks doing very well over the next decade given current high valuations. I will buy more when the market goes down to go back to my routine investment plan: (25% US; 20% emerging; 12% developed).

I keep buying stocks and bonds every month. For now I feel more confortable doing so with 20% on EM; 12% on developed markets, 12% on US stocks and the rest on bonds.

Any thoughts?

Thanks to all!!! Great forum inspired by a great man!

software
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Re: I reduced my exposure to US stocks before the correction.

Post by software » Sun Feb 18, 2018 1:51 pm

Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
I'm a huge fan of this forum!

My portfolio has been pretty conservative for my age (I'm 43yo): 50/50.

I've found the books written by John Bogle incredibly inspiring, clear and well written. I know that Mr. Bogle is not a fan of investing in overseas market because US companies do make money abroad anyway.

A crucial piece of advice of his is: "stay the course!".

I must say, however, that I have been uneasy about how high the valuations of US stocks have been over the last few months. The Schiller P/E ratio (35 years of profit) has been a red flag to me for some time.

So I did something unorthodox which was to reduce my exposure to US stocks **before** the recent correction. I take no particular pride in that. It was just a matter of feeling more confortable. For now, I am glad I did because I don't see much room for the US bull market given current valuations.

My current portfolio is:

- 56% bonds (about half in Intermedium Term Grade Bonds; and the other half in TIPS)
- 44% stocks (20% emerging; 12% developed; 12% US)

It is estimated that 80% of global growth will take place in EM over the next 10 years, hence my 20% on EM.

Although dividends from developed markets are appreciated, I don't see much growth potential on a long term perspective, hence my 12% exposure.

I determined my exposure to US stocks based on the fact that Jack Bogle himself doesn't see domestic stocks doing very well over the next decade given current high valuations. I will buy more when the market goes down to go back to my routine investment plan: (25% US; 20% emerging; 12% developed).

I keep buying stocks and bonds every month. For now I feel more confortable doing so with 20% on EM; 12% on developed markets, 12% on US stocks and the rest on bonds.

Any thoughts?

Thanks to all!!! Great forum inspired by a great man!
My thought is that market timing (yes, this is market timing) based on CAPE has never proven a successful strategy in the past, and I see no reason why it should be successful in the future. I will continue to stay the course.

Congrats on your move though, you clearly do take pride in it. Good luck on the buy back in...

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steve roy
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Re: I reduced my exposure to US stocks before the correction.

Post by steve roy » Sun Feb 18, 2018 1:57 pm

Our current stock/bond allocation is 35/65, with 22% of equities in foreign. No plans to jettison domestic stock funds, but in the next couple of months we'll be buying more bonds to get the allocation to 70%, and ALL additional equities purchased will be international.

chevca
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Re: I reduced my exposure to US stocks before the correction.

Post by chevca » Sun Feb 18, 2018 2:13 pm

Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
I determined my exposure to US stocks based on the fact that Jack Bogle himself doesn't see domestic stocks doing very well over the next decade given current high valuations. I will buy more when the market goes down to go back to my routine investment plan: (25% US; 20% emerging; 12% developed).
That's quite a determination to come up with since Mr. Bogle doesn't think international investing is even necessary, or to keep it to 20% of one's stock exposure.... :shock:

You have quite a tilt to EM with either plan. You also have 50% plus in bonds. So, it's not like an extreme risk being taken. But, more risk... as long as you're aware of that.

Shifting your portfolio around based on market movements, expected movements, or valuations is market timing plain and simple. As long as you know that also...

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Re: I reduced my exposure to US stocks before the correction.

Post by mega317 » Sun Feb 18, 2018 2:14 pm

Your post reads like an explanation of your portfolio which, while is not the same as mine, seems fine. But why set it up like you did unless you feel some connection, retrospective though it may be, to present market conditions?

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Re: I reduced my exposure to US stocks before the correction.

Post by FrugalInvestor » Sun Feb 18, 2018 2:24 pm

Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
A crucial piece of advice of his is: "stay the course!".
What Jack means by this is have a plan and stick with it, not change when you become 'uneasy.' Allowing uneasiness to dictate the moves you make in the market often doesn't work out well.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

aristotelian
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Re: I reduced my exposure to US stocks before the correction.

Post by aristotelian » Sun Feb 18, 2018 2:31 pm

You can try to time the market and tilt toward EM or whatever but you will probably be wrong as often as you are right. I would guess that your long term returns would be the same or better simply by having patience and staying in the market for the long haul. If the US market stays strong, you are going to be missing out.

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Re: I reduced my exposure to US stocks before the correction.

Post by staythecourse » Sun Feb 18, 2018 2:32 pm

No offense to the OP, but this is a big of Dr. Jekyl and Mr. Hyde post as I have seen for awhile. First, loving the forum, loving Mr. Bogle, and "staying the course" then turn around and give a whole bunch of rationalization of market timing.

I am not going to be too negative so good luck to the OP, but will caution ANY of the young investors please do not follow ANY of this advice as it is about as much ANTI-bogle and ANTI-boglehead as you can get.

Good luck
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: I reduced my exposure to US stocks before the correction.

Post by chicagoan23 » Sun Feb 18, 2018 2:51 pm

Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
I'm a huge fan of this forum!

My portfolio has been pretty conservative for my age (I'm 43yo): 50/50.

I've found the books written by John Bogle incredibly inspiring, clear and well written. I know that Mr. Bogle is not a fan of investing in overseas market because US companies do make money abroad anyway.

A crucial piece of advice of his is: "stay the course!".

I must say, however, that I have been uneasy about how high the valuations of US stocks have been over the last few months. The Schiller P/E ratio (35 years of profit) has been a red flag to me for some time.

So I did something unorthodox which was to reduce my exposure to US stocks **before** the recent correction. I take no particular pride in that. It was just a matter of feeling more confortable. For now, I am glad I did because I don't see much room for the US bull market given current valuations.

My current portfolio is:

- 56% bonds (about half in Intermedium Term Grade Bonds; and the other half in TIPS)
- 44% stocks (20% emerging; 12% developed; 12% US)

It is estimated that 80% of global growth will take place in EM over the next 10 years, hence my 20% on EM.

Although dividends from developed markets are appreciated, I don't see much growth potential on a long term perspective, hence my 12% exposure.

I determined my exposure to US stocks based on the fact that Jack Bogle himself doesn't see domestic stocks doing very well over the next decade given current high valuations. I will buy more when the market goes down to go back to my routine investment plan: (25% US; 20% emerging; 12% developed).

I keep buying stocks and bonds every month. For now I feel more confortable doing so with 20% on EM; 12% on developed markets, 12% on US stocks and the rest on bonds.

Any thoughts?

Thanks to all!!! Great forum inspired by a great man!
What type of return do you expect with 56% intermediate bonds and 12% US equities?

And you say you will move back into US equities “when the market goes down” but what does that mean? Are you going to wait until Schiller CAPE reaches a certain level?

NibbanaBanana
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Re: I reduced my exposure to US stocks before the correction.

Post by NibbanaBanana » Sun Feb 18, 2018 3:13 pm

I did the same thing just a couple weeks ago. I also think that US stocks are overpriced. But that's just my opinion. I try not to act on my opinions because oftentimes, they're wrong. But Vanguard's portfolio tester tool said "Caution: Your portfolio emphasizes growth stocks......." and "International stocks are 25% of your portfolio. Consider allocating 30-50% to international...". So I sold my growth index fund and bought equal amounts of international growth and international value. I very much take John Bogle's advice but I also take Vanguard's advice.

I'm not sure if international did any better during the correction or not. (Now that really would be market timing. HeHe...)

livesoft
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Re: I reduced my exposure to US stocks before the correction.

Post by livesoft » Sun Feb 18, 2018 3:22 pm

I also reduced my exposure to stocks before the correction in a normal act of rebalancing. Then I increased my exposure to stocks at near the bottom of the correction in another act of rebalancing. Thank goodness because bond funds lost a ton of money during those 10 days.

My point is that one can make money lots of different ways and that bond funds can lose money, too. Investors can simply not escape no matter what they do.
Last edited by livesoft on Sun Feb 18, 2018 3:22 pm, edited 1 time in total.
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Re: I reduced my exposure to US stocks before the correction.

Post by jminv » Sun Feb 18, 2018 3:22 pm

You are making a bet, and it is a bet, on EM index growth and ex-US index growth in general. Superior EM index growth has been forecasted for years, not a new development, but hasn't materialized. It has been a lower return, higher risk investment. If you look back 10 years, US government intermediate bonds (BIV index) which you're in would have outperformed EM (VWO index). CAGR of 4.71% vs 2.17% and with deviation of 5.5% vs 23.2%.

The Shiller PE is not supposed to be a timing tool but you used it as one. Timing in general is random chance and not forecastable. You missed the US correction but most of those losses have already been recovered. EM also declined in value along with US in the recent correction so not exactly successful timing.

By allocating more to EM you might avoid a large decline in US stocks eventually from a downturn but you'll have also missed the increase in between and the increase after since you won't get back in to your prior percent holding. You'll also be exposed to more EM fluctuations and incidentally EM index has historically been more volatile ie more risky. In a worldwide event, it's just as likely that EM will move in correlation with US down. You've also used a large dataset in the Shiller PE to judge the current US CAPE to be high and EM low with better prospects but there's not really an equivalent period of time to judge the CAPE over time for EM as a whole. The EM CAPE could be low for a whole host of reasons.

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Re: I reduced my exposure to US stocks before the correction.

Post by mortfree » Sun Feb 18, 2018 3:25 pm

What correction?

75:25

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Re: I reduced my exposure to US stocks before the correction.

Post by saltycaper » Sun Feb 18, 2018 3:53 pm

Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm

It is estimated that 80% of global growth will take place in EM over the next 10 years, hence my 20% on EM.
Even if accurate, this doesn't necessarily mean EM stocks will outperform non-EM stocks by such a large margin, or at all. For instance, US and developed ex-US companies do a lot of business in EM markets. Just something to be aware of.

(I also overweight EM, but not nearly as much as your 45% stock allocation to EM. More like 20%.)
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Re: I reduced my exposure to US stocks before the correction.

Post by triceratop » Sun Feb 18, 2018 3:59 pm

saltycaper wrote:
Sun Feb 18, 2018 3:53 pm
Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm

It is estimated that 80% of global growth will take place in EM over the next 10 years, hence my 20% on EM.
Even if accurate, this doesn't necessarily mean EM stocks will outperform non-EM stocks by such a large margin, or at all. For instance, US and developed ex-US companies do a lot of business in EM markets. Just something to be aware of.

(I also overweight EM, but not nearly as much as your 45% stock allocation to EM. More like 20%.)
Not to mention that GDP growth is often not fully captured by stock returns in developing countries. They are sometimes even negatively correlated (high rates of share issuance, for example, as a cause).
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

Brian1995
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Re: I reduced my exposure to US stocks before the correction.

Post by Brian1995 » Sun Feb 18, 2018 4:05 pm

Thanks for your input!
You're absolutely right: you didn't want to be over-invested in EM in the last 10 years. US Equity was, by far, superior!

Precisely my point though: I see more potential in EM when they're relatively low. I'm also interested in the demographics of EM and the rising middle classe of these countries over the next 10-15 years.

Thanks for your input re the Schiller PE. It is true that markets are so inter-dependent that any variation in the US market will have ripple effects all over the world anyway....
====
jminv wrote:
Sun Feb 18, 2018 3:22 pm
You are making a bet, and it is a bet, on EM index growth and ex-US index growth in general. Superior EM index growth has been forecasted for years, not a new development, but hasn't materialized. It has been a lower return, higher risk investment. If you look back 10 years, US government intermediate bonds (BIV index) which you're in would have outperformed EM (VWO index). CAGR of 4.71% vs 2.17% and with deviation of 5.5% vs 23.2%.

The Shiller PE is not supposed to be a timing tool but you used it as one. Timing in general is random chance and not forecastable. You missed the US correction but most of those losses have already been recovered. EM also declined in value along with US in the recent correction so not exactly successful timing.

By allocating more to EM you might avoid a large decline in US stocks eventually from a downturn but you'll have also missed the increase in between and the increase after since you won't get back in to your prior percent holding. You'll also be exposed to more EM fluctuations and incidentally EM index has historically been more volatile ie more risky. In a worldwide event, it's just as likely that EM will move in correlation with US down. You've also used a large dataset in the Shiller PE to judge the current US CAPE to be high and EM low with better prospects but there's not really an equivalent period of time to judge the CAPE over time for EM as a whole. The EM CAPE could be low for a whole host of reasons.

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Re: I reduced my exposure to US stocks before the correction.

Post by tmcc » Sun Feb 18, 2018 4:57 pm

so -- new to bond vs stock AA.

is the point of the bond AA so that you can reallocate back to stocks when there is actually a correction?

for example..

if you are 90/10 stocks and you anticipate downward movement, maybe you go 60/40 stocks. now, as that move down in equities happen, the dollar value of your bonds increases. so ultimately, to maintain 60/40, you increasingly reallocate from bonds back to stocks correct?

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Re: I reduced my exposure to US stocks before the correction.

Post by jalbert » Sun Feb 18, 2018 5:17 pm

- 56% bonds (about half in Intermedium Term Grade Bonds; and the other half in TIPS)
- 44% stocks (20% emerging; 12% developed; 12% US)
If bonds are all in TIPs and corporate bonds, and stock is tilted strongly to EM, you are taking substantial risk that the disinflation in recent years is not yet over. If you want to take that risk because you believe you have information about demographics and projected future growth of the world's nations that is superior to what the rest of the market has, then so be it, but at least understand the risks you are taking.

You may want to investigate the demographics of specific countries. The aging populations of China, Taiwan and Russia are representative of a very different demographic distribution than the young populations of India, Mexico, or Indonesia. Stocks from China, Taiwan, and Russia together make up 50% of the holdings of VEIEX/VEMAX/VWO, the VG EM stock index fund.
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chevca
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Re: I reduced my exposure to US stocks before the correction.

Post by chevca » Sun Feb 18, 2018 5:22 pm

tmcc wrote:
Sun Feb 18, 2018 4:57 pm
so -- new to bond vs stock AA.

is the point of the bond AA so that you can reallocate back to stocks when there is actually a correction?

for example..

if you are 90/10 stocks and you anticipate downward movement, maybe you go 60/40 stocks. now, as that move down in equities happen, the dollar value of your bonds increases. so ultimately, to maintain 60/40, you increasingly reallocate from bonds back to stocks correct?
That would be more of a tactical AA, or market timing if honest.

The point of bonds is more for stability, so that part of your portfolio stays more steady. Also, they give you a chance to rebalance to keep the AA at 90/10 or 60/40 or whatever one has. Not to switch from one AA to another and back and forth though.

tmcc
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Re: I reduced my exposure to US stocks before the correction.

Post by tmcc » Sun Feb 18, 2018 5:45 pm

chevca wrote:
Sun Feb 18, 2018 5:22 pm
tmcc wrote:
Sun Feb 18, 2018 4:57 pm
so -- new to bond vs stock AA.

is the point of the bond AA so that you can reallocate back to stocks when there is actually a correction?

for example..

if you are 90/10 stocks and you anticipate downward movement, maybe you go 60/40 stocks. now, as that move down in equities happen, the dollar value of your bonds increases. so ultimately, to maintain 60/40, you increasingly reallocate from bonds back to stocks correct?
That would be more of a tactical AA, or market timing if honest.

The point of bonds is more for stability, so that part of your portfolio stays more steady. Also, they give you a chance to rebalance to keep the AA at 90/10 or 60/40 or whatever one has. Not to switch from one AA to another and back and forth though.
OK. In a less extreme example, if you were 60/40 always and stocks devalue for whatever reason, suddenly you might be 40/60 despite having made no manual reallocations. That is the time to reallocate to 60/40, correct? Effectively, youre treating the bond investment as cash but getting a better ROR. Am I missing something?

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Re: I reduced my exposure to US stocks before the correction.

Post by whodidntante » Sun Feb 18, 2018 5:48 pm

I did too, accidentally. I liquidated my HSA investments for a trustee to trustee transfer. They were sold near the (current) top and rebought near the (current) bottom strictly by luck.

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Re: I reduced my exposure to US stocks before the correction.

Post by livesoft » Sun Feb 18, 2018 6:16 pm

tmcc wrote:
Sun Feb 18, 2018 5:45 pm
OK. In a less extreme example, if you were 60/40 always and stocks devalue for whatever reason, suddenly you might be 40/60 despite having made no manual reallocations. That is the time to reallocate to 60/40, correct? Effectively, youre treating the bond investment as cash but getting a better ROR. Am I missing something?
If equities dropped 50% (an extreme example!!), then a 60/40 portfolio might go to 30/40 which is 43/57 despite having made no manual reallocations.

So your example is quite extreme, don't you think? :)
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Re: I reduced my exposure to US stocks before the correction.

Post by whodidntante » Sun Feb 18, 2018 6:20 pm

A 50% drop in equities would change the tone of the U.S. Stocks in Freefall permathread significantly.

tmcc
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Re: I reduced my exposure to US stocks before the correction.

Post by tmcc » Sun Feb 18, 2018 6:23 pm

:confused Why is the question being dodged?

livesoft
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Re: I reduced my exposure to US stocks before the correction.

Post by livesoft » Sun Feb 18, 2018 6:47 pm

What question?

If the question is "Can bond funds be used to rebalance into equity funds?" then the answer is "Definitely, Yes!"
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chevca
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Re: I reduced my exposure to US stocks before the correction.

Post by chevca » Sun Feb 18, 2018 6:55 pm

tmcc wrote:
Sun Feb 18, 2018 5:45 pm
chevca wrote:
Sun Feb 18, 2018 5:22 pm
tmcc wrote:
Sun Feb 18, 2018 4:57 pm
so -- new to bond vs stock AA.

is the point of the bond AA so that you can reallocate back to stocks when there is actually a correction?

for example..

if you are 90/10 stocks and you anticipate downward movement, maybe you go 60/40 stocks. now, as that move down in equities happen, the dollar value of your bonds increases. so ultimately, to maintain 60/40, you increasingly reallocate from bonds back to stocks correct?
That would be more of a tactical AA, or market timing if honest.

The point of bonds is more for stability, so that part of your portfolio stays more steady. Also, they give you a chance to rebalance to keep the AA at 90/10 or 60/40 or whatever one has. Not to switch from one AA to another and back and forth though.
OK. In a less extreme example, if you were 60/40 always and stocks devalue for whatever reason, suddenly you might be 40/60 despite having made no manual reallocations. That is the time to reallocate to 60/40, correct? Effectively, youre treating the bond investment as cash but getting a better ROR. Am I missing something?
Yes, then that would be the time to rebalance (not reallocate) back to 60/40.

As others said though, that would take quite a move or quite a long time. You should rebalance along the way to stay at 60/40 rather than wait until things are that out of whack.

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Re: I reduced my exposure to US stocks before the correction.

Post by in_reality » Sun Feb 18, 2018 7:08 pm

Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
I must say, however, that I have been uneasy about how high the valuations of US stocks have been over the last few months. The Schiller P/E ratio (35 years of profit) has been a red flag to me for some time.
I agree. But "red flag" is too strong. It's still expected they will have 3-4% real returns which is better than bonds.
Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
So I did something unorthodox which was to reduce my exposure to US stocks **before** the recent correction. I take no particular pride in that. It was just a matter of feeling more confortable. For now, I am glad I did because I don't see much room for the US bull market given current valuations.
I did too (Jan 17th). Actually, I rebalanced per my plan to be 50% stock, 50% bonds. I was approaching 60% stocks due to their good run.

Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
My current portfolio is:

- 56% bonds (about half in Intermedium Term Grade Bonds; and the other half in TIPS)
- 44% stocks (20% emerging; 12% developed; 12% US)

It is estimated that 80% of global growth will take place in EM over the next 10 years, hence my 20% on EM.
We usually quote international as a percent of stocks.

So you are 44% EM, 27% Developed International and 27% US.
Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
Although dividends from developed markets are appreciated, I don't see much growth potential on a long term perspective, hence my 12% exposure.
Assuming much of global growth comes from EM over your lifetime (strongest case argument here - not saying it will actually happen), how do you know that US or developed international stocks won't benefit the most?

For example if vehicle sales increase, you know GM and Toyota subsidies will try to create products for and increase their sales in the region.
Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
I determined my exposure to US stocks based on the fact that Jack Bogle himself doesn't see domestic stocks doing very well over the next decade given current high valuations. I will buy more when the market goes down to go back to my routine investment plan: (25% US; 20% emerging; 12% developed).


I keep buying stocks and bonds every month. For now I feel more confortable doing so with 20% on EM; 12% on developed markets, 12% on US stocks and the rest on bonds.

Any thoughts?
I am closer to global market allocation at 52% US. EM valuations are low (but volatility is high) and with a low overall allocation to stocks (50%), I overweight at 20%. 28% is developed international.

I also have a fair amount in value type funds.

Go with what you feel comfortable. I agree high valuations suggest lower future returns long term, but at the same time think lower valuations suggest this is more risk with the stock. So you can look at EM as less risky due to the valuation, but don't forget it has that low valuation in order to induce investors to overlook the risk (of corruption, political instability, currency trouble etc.).

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Re: I reduced my exposure to US stocks before the correction.

Post by JoeRetire » Sun Feb 18, 2018 7:20 pm

Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
My portfolio has been pretty conservative for my age (I'm 43yo): 50/50.

My current portfolio is:
- 56% bonds (about half in Intermedium Term Grade Bonds; and the other half in TIPS)
- 44% stocks (20% emerging; 12% developed; 12% US)

Any thoughts?
You started with a portfolio that is rather conservative and based on your market timing intuition you made it even more conservative.
Okay.

I think you are far more risk-averse and conservative than I am (and I'm 63). But to each his/her own.

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Re: I reduced my exposure to US stocks before the correction.

Post by Longdog » Sun Feb 18, 2018 7:33 pm

Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
So I did something unorthodox which was to reduce my exposure to US stocks **before** the recent correction. I take no particular pride in that. It was just a matter of feeling more confortable. For now, I am glad I did because I don't see much room for the US bull market given current valuations.

My current portfolio is:

- 56% bonds (about half in Intermedium Term Grade Bonds; and the other half in TIPS)
- 44% stocks (20% emerging; 12% developed; 12% US)

I keep buying stocks and bonds every month. For now I feel more confortable doing so with 20% on EM; 12% on developed markets, 12% on US stocks and the rest on bonds.

Any thoughts?

Thanks to all!!! Great forum inspired by a great man!
I think you merely reevaluated your risk tolerance and tweaked it a bit. It doesn't sound like you intend to be jumping in and out of the market, trying to time its every possible move. So, no big deal.
Steve

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Re: I reduced my exposure to US stocks before the correction.

Post by Noobvestor » Sun Feb 18, 2018 7:42 pm

International/emerging have looked like better deals for years now. At a few points, I thought idly about tilting more in that direction (I'm 50/50 US/international) - it would not have worked out to my advantage. To critics of OP: Bogle has himself tilted his portfolio modestly based on market valuations, and I don't think it's totally inconsistent to do so. That said, "modest" is a key part of this. Also: beware of recency bias (and tilting toward the asset class that has done well recently) - international developed and emerging have both beaten US stocks over the last year, and since their valuations have looked better for a while, I have to wonder a bit why you didn't make a change sooner.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

JBTX
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Re: I reduced my exposure to US stocks before the correction.

Post by JBTX » Sun Feb 18, 2018 8:13 pm

Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
I'm a huge fan of this forum!

My portfolio has been pretty conservative for my age (I'm 43yo): 50/50.

I've found the books written by John Bogle incredibly inspiring, clear and well written. I know that Mr. Bogle is not a fan of investing in overseas market because US companies do make money abroad anyway.

A crucial piece of advice of his is: "stay the course!".

I must say, however, that I have been uneasy about how high the valuations of US stocks have been over the last few months. The Schiller P/E ratio (35 years of profit) has been a red flag to me for some time.

So I did something unorthodox which was to reduce my exposure to US stocks **before** the recent correction. I take no particular pride in that. It was just a matter of feeling more confortable. For now, I am glad I did because I don't see much room for the US bull market given current valuations.

My current portfolio is:

- 56% bonds (about half in Intermedium Term Grade Bonds; and the other half in TIPS)
- 44% stocks (20% emerging; 12% developed; 12% US)

It is estimated that 80% of global growth will take place in EM over the next 10 years, hence my 20% on EM.

Although dividends from developed markets are appreciated, I don't see much growth potential on a long term perspective, hence my 12% exposure.

I determined my exposure to US stocks based on the fact that Jack Bogle himself doesn't see domestic stocks doing very well over the next decade given current high valuations. I will buy more when the market goes down to go back to my routine investment plan: (25% US; 20% emerging; 12% developed).

I keep buying stocks and bonds every month. For now I feel more confortable doing so with 20% on EM; 12% on developed markets, 12% on US stocks and the rest on bonds.

Any thoughts?

Thanks to all!!! Great forum inspired by a great man!
I’m not against going with a more conservative allocation or tilting more EM or international. But:

This last correction is immaterial in the scheme of things. Don’t make changes anticipating a 10% up or down move. I could understand making such a move if you think long term returns will suffer.

I wouldnt make an allocation change unless you are prepared to stick with it for the long term. Now you are basically out of the US market. What is your criteria for getting back in? If it keeps going up will you stay out of it forever.

You may find the musings of Jeremy Grantham interesting. Go to his “GMO” sites and read his quarterly letter. His approach is not a Boglehead one, but nonetheless very extensively thought out. They currently underweight US and overweight EM. Over time, he has been pretty good at identifying and calling bubbles, and he is typically eventually right, but it usually takes many years and much more asset appreciation before his predictions come true. The net result is I don’t think his portfolios outperform index funds. I suspect they are probably less risky though.

stocknoob4111
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Re: I reduced my exposure to US stocks before the correction.

Post by stocknoob4111 » Sun Feb 18, 2018 9:10 pm

livesoft wrote:
Sun Feb 18, 2018 3:22 pm
My point is that one can make money lots of different ways and that bond funds can lose money, too.
They are just front end losses so not losses in the strict sense of the word. By definition you can lose money in a bond fund only if the fund itself collapses due to creditors defaulting, someone correct me if I am wrong but that is my understanding of it. With AAA Government and Corp debt that is a very very small risk so for all practical purposes you will not lose money if you keep it to duration which you would anyways - because if you would liquidate part of your bond portfolio it would be only for two purposes, an extreme emergency in which case you would much rather liquidate bonds rather than equities that could trigger much larger capital gains or losses or you are liquidating to invest in a much better money making opportunity in which case the small loss shouldn't matter too much.

I'm not sure why everyone freaks out when the NAV of a bond fund drops, not the end of the world.. first off the drop is rather miniscule compared to equities, second there is recapture opportunity from increased yield so no reason for alarm.

asif408
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Re: I reduced my exposure to US stocks before the correction.

Post by asif408 » Sun Feb 18, 2018 9:42 pm

OP,

I'm going to take the minority view here and say I agree with what you did, but don't necessarily agree on your approach. If you are going to be tactical now, why would you be static later? IOW, if you are going to adjust your stock allocation based on valuations now, why would you stop adjustments in the future?

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telemark
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Re: I reduced my exposure to US stocks before the correction.

Post by telemark » Sun Feb 18, 2018 10:29 pm

Bogle also said that successful investing is about avoiding the big mistakes. The thing to remember here is that a five percent change is at worst a small mistake.

I did something similar last fall, going from 60/40 to 55/45. I'm 58 and the recent run-up in the stock market had put me nearer to retiring than I had expected. It would have been 50/50 but I didn't have the nerve to move that much money all at once.

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Alexa9
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Re: I reduced my exposure to US stocks before the correction.

Post by Alexa9 » Sun Feb 18, 2018 10:35 pm

Set it and forget it. Tinkering is a bad habit.

Kinkelly
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Re: I reduced my exposure to US stocks before the correction.

Post by Kinkelly » Mon Feb 19, 2018 1:56 am

I also reduced my exposure to US stocks as they ran up in the last few months prior to pullback. No market timing just planned rebalancing. Making portfolio a little more conservative each year as I am 4-5 years from retirement.

Always passive
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Re: I reduced my exposure to US stocks before the correction.

Post by Always passive » Mon Feb 19, 2018 2:48 am

software wrote:
Sun Feb 18, 2018 1:51 pm
Brian1995 wrote:
Sun Feb 18, 2018 1:45 pm
I'm a huge fan of this forum!

My portfolio has been pretty conservative for my age (I'm 43yo): 50/50.

I've found the books written by John Bogle incredibly inspiring, clear and well written. I know that Mr. Bogle is not a fan of investing in overseas market because US companies do make money abroad anyway.

A crucial piece of advice of his is: "stay the course!".

I must say, however, that I have been uneasy about how high the valuations of US stocks have been over the last few months. The Schiller P/E ratio (35 years of profit) has been a red flag to me for some time.

So I did something unorthodox which was to reduce my exposure to US stocks **before** the recent correction. I take no particular pride in that. It was just a matter of feeling more confortable. For now, I am glad I did because I don't see much room for the US bull market given current valuations.

My current portfolio is:

- 56% bonds (about half in Intermedium Term Grade Bonds; and the other half in TIPS)
- 44% stocks (20% emerging; 12% developed; 12% US)

It is estimated that 80% of global growth will take place in EM over the next 10 years, hence my 20% on EM.

Although dividends from developed markets are appreciated, I don't see much growth potential on a long term perspective, hence my 12% exposure.

I determined my exposure to US stocks based on the fact that Jack Bogle himself doesn't see domestic stocks doing very well over the next decade given current high valuations. I will buy more when the market goes down to go back to my routine investment plan: (25% US; 20% emerging; 12% developed).

I keep buying stocks and bonds every month. For now I feel more confortable doing so with 20% on EM; 12% on developed markets, 12% on US stocks and the rest on bonds.

Any thoughts?

Thanks to all!!! Great forum inspired by a great man!
My thought is that market timing (yes, this is market timing) based on CAPE has never proven a successful strategy in the past, and I see no reason why it should be successful in the future. I will continue to stay the course.

Congrats on your move though, you clearly do take pride in it. Good luck on the buy back in...
I do not know where you got that data. It is a fact that the shiller number is not a good market timer, but in the long term there is sufficient evidence to accept it as a reliable indicator of performance

software
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Re: I reduced my exposure to US stocks before the correction.

Post by software » Tue Feb 20, 2018 3:00 pm

We are speaking two different things.

Does CAPE give you a high level view of what returns might be in the future? Maybe? (Not sure how this relates to the OP though)

Can CAPE be used as a buy and sell trigger to effectively time the market? No.

John Laurens
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Re: I reduced my exposure to US stocks before the correction.

Post by John Laurens » Tue Feb 20, 2018 3:26 pm

Op,

You are a market timer. Why haven’t you successfully market timed your bonds? If you are going to market time your equities, you might as well market time your fixed income.

Regards,
John

zengolf2011
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Re: I reduced my exposure to US stocks before the correction.

Post by zengolf2011 » Tue Feb 20, 2018 7:00 pm

Brian, if your newly established 44% stock allocation is based upon a new recognition of your risk tolerarance and if you are willing to stay the course with this allocation regardless of transitory changes in market outlook, you have done a good thing because this allocation will permit you to stay the course. However, it sounds as if you made this change in an attempt to time the market based on the Shiller CAPE model, which is not claimed to be predictive of short term market moves. Many, many studies have demonstrated that market timing diminishes total return in the long run.

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