Please look at my portfolio and give me advice [Norway]

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
OkEmail
Posts: 1
Joined: Tue Aug 07, 2018 7:38 pm

Please look at my portfolio and give me advice [Norway]

Post by OkEmail » Fri Aug 17, 2018 5:42 pm

Hi. Im not from the US so please excuse my english :)

What do you think about my portfolio?

This is my portfolio http://tools.morningstar.no/no/xray/def ... ditholding

As you can see I have an overweight of nordic index funds. But thats because the TER of those index funds are 0.00%.
Do you agree it makes sense to put a little extra in those funds?

asset_chaos
Posts: 1343
Joined: Tue Feb 27, 2007 6:13 pm
Location: Melbourne

Re: Please look at my portfolio and give me advice [Norway]

Post by asset_chaos » Sat Aug 18, 2018 3:45 am

One of the more important aspects of a portfolio is that you will be able to stick with your plan, no matter what the market does. So you have to be content with your portfolio and with your reasons for the particular decisions you've made for your portfolio to be one way instead of another. However, it may be useful to explicitly recognize that you are substantially overweight Nordic stocks (28% of portfolio, about 26% of stocks, when Norway, Sweden, Denmark, and Finland altogether are about 2% of the global stock market). The lower cost for those funds is a reasonable reason for some home region overweight. I personally advocate that most people, especially people living and working in smaller market countries, default to a global stock portfolio. And then to ask themselves, are there particular cost or tax or temperament issues that imply I should overweight my home country or region. If the answer is yes, there are good reasons for me to have a bit of home bias, I also advocate that the home overweight not be extreme. This is not advice. This is what I think is the right thought process to go through when making the decisions that you will have to live with. By going through a thoughtful and introspective decision process, I think you're ahead of the savings/investing game already.
Regards, | | Guy

DJN
Posts: 92
Joined: Mon Nov 20, 2017 12:30 am

Re: Please look at my portfolio and give me advice [Norway]

Post by DJN » Sat Aug 18, 2018 5:10 am

Hi,
here is another version for a European investing in accumulating funds, all UCITS and Ireland domiciled, this should be acceptable to most:
BONDS
TICKER: AGGH (iShares) - IE00BDBRDM35
DESCRIPTION: Global aggregate
TER: 0.10%
COMMENTS: Accumulating, hedged

EQUITY
TICKER: SWDA (iShares) - IE00B4L5Y983
DESCRIPTION: Global, developed countries
TER: 0.20%
COMMENT: Accumulating

TICKER: EIMI (iShares) - IE00BKM4GZ66
DESCRIPTION: Emerging mkts
TER: 0.18%
COMMENT: Accumulating

TICKER: WSML (iShares MSCI) - IE00BF4RFH31
DESCRIPTION: World Small Cap
TER: 0.35%
COMMENT: Accumulating

Important to check what's allowable or most cost effective under your own tax system before you go too far.
good luck,
DJN

selters
Posts: 592
Joined: Thu Feb 27, 2014 9:26 am

Re: Please look at my portfolio and give me advice [Norway]

Post by selters » Sat Aug 18, 2018 6:19 am

It's fine as it is. If you for tax reasons have to keep KLP Aksjeverden and KLP Aksjeglobal V, then that's fine, but be aware that there's a lot of overlap between these two funds and the S&P 500 fund, the Europe fund and the EM fund. So consider dropping these two KLP funds.

There is no optimal solution for us Scandinavian investors. If we want minimal costs and maximal tax efficiency, we have to use ETFs, but they come with some extra tax reporting work. With that being said, Norway is probably the second best country in the world for index fund investors, after the USA. The regular global index funds from KLP/Storebrand/DNB are just fine, but they will lag the ETFs by "a few" basis points every year.

andrew99999
Posts: 22
Joined: Fri Jul 13, 2018 8:14 pm

Re: Please look at my portfolio and give me advice [Norway]

Post by andrew99999 » Sat Aug 18, 2018 9:49 am

asset_chaos wrote:
Sat Aug 18, 2018 3:45 am
I personally advocate that most people, especially people living and working in smaller market countries, default to a global stock portfolio. And then to ask themselves, are there particular cost or tax or temperament issues that imply I should overweight my home country or region. If the answer is yes, there are good reasons for me to have a bit of home bias, I also advocate that the home overweight not be extreme. This is not advice. This is what I think is the right thought process to go through when making the decisions that you will have to live with. By going through a thoughtful and introspective decision process, I think you're ahead of the savings/investing game already.
I always assumed that for home bias for economies under 10% of the world by market cap:
1. you need enough in case your home country does well and you effectively are left behind if you have not overweighted.
2. you need enough international diversification in case your home country does poorly such as a major recession.

When you said that for smaller economies should not overweight their home country, do you not consider #1 a valid reason to overweight home country?

I am from Australia and I would worry if I had only 2% of my portfolio in the Australian economy. If Australia out performs over the next couple of decades, I would need to work for years more than I otherwise would. How do you figure this is not an issue?

Norwegian
Posts: 5
Joined: Tue Aug 07, 2018 4:47 am

Re: Please look at my portfolio and give me advice [Norway]

Post by Norwegian » Sun Aug 19, 2018 3:14 pm

selters wrote:
Sat Aug 18, 2018 6:19 am
There is no optimal solution for us Scandinavian investors. If we want minimal costs and maximal tax efficiency, we have to use ETFs, but they come with some extra tax reporting work. With that being said, Norway is probably the second best country in the world for index fund investors, after the USA. The regular global index funds from KLP/Storebrand/DNB are just fine, but they will lag the ETFs by "a few" basis points every year.
And why is that? I've just been in the investing game for around a year so I'm curious.

Today I have most of my money in KLP AksjeGlobal Indeks V and KLP Aksje Fremvoksende markeder Indeks II (Emerging markets), as I found this to be the easiest and cheapest option for now. I guess I could go cheaper with a combo of 4–5 ETFs and index funds, but as I understand it the ER would not be the only cost when buying from Norway. There would be currency exchange costs and also a 0,2 % cost when selling the ETFs (there might be better options available, but I haven't found them. For the record I use Nordnet).

selters
Posts: 592
Joined: Thu Feb 27, 2014 9:26 am

Re: Please look at my portfolio and give me advice [Norway]

Post by selters » Mon Aug 20, 2018 2:10 am

Norwegian wrote:
Sun Aug 19, 2018 3:14 pm
selters wrote:
Sat Aug 18, 2018 6:19 am
, Norway is probably the second best country in the world for index fund investors, after the USA.
And why is that? I've just been in the investing game for around a year so I'm curious.
Seems like most other countries skipped the traditional index mutual fund step and jumped straight to ETFs.

Yes, there are some costs associated with ETFs that you don't have with mutual funds, such as currency exchange costs, commissions and spreads.

asset_chaos
Posts: 1343
Joined: Tue Feb 27, 2007 6:13 pm
Location: Melbourne

Re: Please look at my portfolio and give me advice [Norway]

Post by asset_chaos » Mon Aug 20, 2018 3:28 am

andrew99999 wrote:
Sat Aug 18, 2018 9:49 am
asset_chaos wrote:
Sat Aug 18, 2018 3:45 am
I personally advocate that most people, especially people living and working in smaller market countries, default to a global stock portfolio. And then to ask themselves, are there particular cost or tax or temperament issues that imply I should overweight my home country or region. If the answer is yes, there are good reasons for me to have a bit of home bias, I also advocate that the home overweight not be extreme. This is not advice. This is what I think is the right thought process to go through when making the decisions that you will have to live with. By going through a thoughtful and introspective decision process, I think you're ahead of the savings/investing game already.
I always assumed that for home bias for economies under 10% of the world by market cap:
1. you need enough in case your home country does well and you effectively are left behind if you have not overweighted.
2. you need enough international diversification in case your home country does poorly such as a major recession.

When you said that for smaller economies should not overweight their home country, do you not consider #1 a valid reason to overweight home country?

I am from Australia and I would worry if I had only 2% of my portfolio in the Australian economy. If Australia out performs over the next couple of decades, I would need to work for years more than I otherwise would. How do you figure this is not an issue?
I'm not quite sure what your point is. Sure, there's a chance my little stock market outpaces the global stock market over the time period I care about---the US outpaced the global stock return in the 20th century and Sweden outpaced the US---but there's at least an equal chance that my little home market will trail the global. That's the true risk of falling behind. I think most stock investors are better off being as broadly diversified as feasible at the lowest feasible cost. To me that means you start with the global stock market, and then if you have reasons to tilt away from the broadest diversification, including reasons of temperament, then tilt away. But it's simply a fact that the smaller the country, the smaller the economy, the smaller the home stock market, the less diversified the home stock market is, and the investor that tilts towards home, especially the small market investor, is taking on concentration risk. The Australian stock market (ASX 200 index), according to https://au.spindices.com/indices/equity/sp-asx-200, has half its market cap in the two sectors of financials and mining. To keep the discussion at least a little to the OP's question, in the Norwegian stock market index, according to https://en.wikipedia.org/wiki/OBX_Index just two companies (one oil company and one bank) make up 35% of the index weight; add in other oil services companies and an insurance company, and the Norwegian market is half financials and oil. It hasn't been too long since the Finnish stock market spent several decades with one company being more than half of the entire Finnish market cap. The smaller the market you tilt to, the more diversification you lose and the more sector risk you take on. Take on sector risk if it makes you content, but don't fool yourself that it's not extra risk. It's one of the more well understood cognitive bias to confound the familiar with the safe. Moreover, you probably have your labor income and possibly own a home (real estate) in Australia. Those are huge parts of your financial life that are hard to diversify. If you also tilt you financial assets excessively to Australia, you're essentially putting almost all of your eggs in the Australia basket. Yes, sometimes those concentrated bets pay off big, but oftentimes they don't. I live in Australia, I want Australia to do well, I go to work trying to improve my little piece of Australia, but I don't want to overweight Australian financial assets too much.

With that said, and for what it's worth, while I favor a global balanced portfolio, I consider a 10% allocation for any asset class to be the minimum to bother with. My Australian investments are a 50:50 mix of stocks and bonds with 10% Australian stocks, 40% global ex-Au stocks, 10% Australian bonds, 40% global bonds hedged to the A$. I don't advocate that anyone follow my example. But I do advocate that investors, especially the small market investor, be as diversified as feasible and to not let home bias blindly give them a riskier stock portfolio than they could have had.
Regards, | | Guy

Valuethinker
Posts: 35636
Joined: Fri May 11, 2007 11:07 am

Re: Please look at my portfolio and give me advice [Norway]

Post by Valuethinker » Mon Aug 20, 2018 4:54 am

andrew99999 wrote:
Sat Aug 18, 2018 9:49 am

I am from Australia and I would worry if I had only 2% of my portfolio in the Australian economy. If Australia out performs over the next couple of decades, I would need to work for years more than I otherwise would. How do you figure this is not an issue?
The Australian index is mostly financials (banks) and natural resources companies. Is that reflective of the Australian economy? By overweighting Australia you are overweighting a handful of large banks and underweighting global consumer stocks and technology in particular. Home country bias just does not make sense for investors resident in small markets.

"Australia outperforms over the next couple of decades" => work for more years

I don't understand your logic. Do you mean if the AUD appreciates you need to work more years?

If you live in Australia, your labour income is in Australia, your home equity is in Australia, any state pension or benefits above your Superannuation are in AUD. That's quite a lot of risk in AUD before you start investing.

Holding global equities diversifies against that. Australia in particular is heavily exposed to China (perhaps the most heavily exposed to China of the developed world economies) - so you've diversified away from that risk. Generally we do not suggest currency hedging equities, on the principle that Purchasing Power Parity holds in the long run - the purchasing power of your portfolio will tend towards a similar level whether it is held in USD AUD or some other currency.

Generally here I think we would suggest holding your bonds in AUD. Australia is a low to very low credit risk nation (talking government bonds at the Federal level, cannot speak to the State level bonds). Currency volatility would exceed fixed income returns so without AUD securities you are taking on volatility but not returns of similar magnitude. In a currency hedged bond fund, your returns will be approximately equal to the risk free rate in the currency (AUD in this case) i.e. what Australian govt bonds yield. All the diversification buys you is possibly lower credit risk, and I judge the risk of the Australian govt actually defaulting to be low to extremely low.

Australian government does issue inflation indexed bonds (I actually looked them up in a discussion with another poster, if you track back my posts). Yields are low, but the major risk in the long run of inflation eating away your savings would be eliminated.

Valuethinker
Posts: 35636
Joined: Fri May 11, 2007 11:07 am

Re: Please look at my portfolio and give me advice [Norway]

Post by Valuethinker » Mon Aug 20, 2018 5:02 am

asset_chaos wrote:
Mon Aug 20, 2018 3:28 am


With that said, and for what it's worth, while I favor a global balanced portfolio, I consider a 10% allocation for any asset class to be the minimum to bother with. My Australian investments are a 50:50 mix of stocks and bonds with 10% Australian stocks, 40% global ex-Au stocks, 10% Australian bonds, 40% global bonds hedged to the A$. I don't advocate that anyone follow my example. But I do advocate that investors, especially the small market investor, be as diversified as feasible and to not let home bias blindly give them a riskier stock portfolio than they could have had.
This is the right approach and your asset allocation seems admirably sensible.

The main reason to hold Australian stocks (above their world weighting of less than 5%) is the dividend tax imputation that gives an Australian taxpayer a higher yield by holding those stocks. However I believe there have been papers cited here that suggest that the market has adjusted for that (higher prices and lower yields, presumably). Also it will not help in a tax deferred account like Superannuation?

I am familiar with the Canadian market and the Australian market is similar. It is very dependent on a handful of banks (5 in the Canadian case) and natural resource stocks. Taken together that's c. 80% of Canadian index.

Australia and Canada share what look like the most overvalued housing markets in the world (the list of price to rents or price to average income in some order is Vancouver (always number 1) SIngapore Hong Kong Melbourne Sydney Toronto Auckland Stockholm). All look worse than the USA at the peak of the 2006 bubble, none of those cities has the sort of booming tech sector that has driven the San Francisco market (although Stockholm has a thriving Unicorn sector). New York and London are special cases (Brexit is a factor, also the future of the financial services industry in general).

If those markets crash (and I believe they will) the pain taken by the domestic financial services sector as well as the domestic economies will be significant (something like 2/3rds the value of all residential property in Canada is in the Greater Toronto and Greater Vancouver Areas). Just like the USA although hopefully with fewer global implications (Lehman).

For residents of those 2 countries, who may well have direct exposure to the housing markets, I think international diversification is even more important. Other than a pension, a home is usually the biggest personal financial asset, and it could easily drop 50% in value.

andrew99999
Posts: 22
Joined: Fri Jul 13, 2018 8:14 pm

Re: Please look at my portfolio and give me advice [Norway]

Post by andrew99999 » Mon Aug 20, 2018 9:58 am

asset_chaos wrote:
Mon Aug 20, 2018 3:28 am
I'm not quite sure what your point is. Sure, there's a chance my little stock market outpaces the global stock market over the time period I care about---the US outpaced the global stock return in the 20th century and Sweden outpaced the US---but there's at least an equal chance that my little home market will trail the global. That's the true risk of falling behind.
Thanks for the reply asset_chaos.

I don't have it with me, but I was reading an article saying the Australian stock market out performed international by 9.7% to 7% compounded over the last 30 or so years. That's a difference of turning 125k into either 1m or 2m. Lots of other examples. If you lived in Sydney over the past 10 years and didn't own a house, yet one day would like one, you now need to pay 1m for a house instead of 500k. These are not small differences of a "little" stock market outpacing the global market, as you put it. They are the difference in being able to draw twice the yearly salary from once retirement has been reached.

I agree with you that there is also a real risk that it falls behind, very possibly a long way. However, I don't see how exactly pointing that out is a legitimate reason to completely ignore that other possibility of it over performing.

I agree with you and Valuethinker on the other points - concentration risk, house ownership, earning currency.

Valuethinker
Posts: 35636
Joined: Fri May 11, 2007 11:07 am

Re: Please look at my portfolio and give me advice [Norway]

Post by Valuethinker » Mon Aug 20, 2018 11:16 am

andrew99999 wrote:
Mon Aug 20, 2018 9:58 am
asset_chaos wrote:
Mon Aug 20, 2018 3:28 am
I'm not quite sure what your point is. Sure, there's a chance my little stock market outpaces the global stock market over the time period I care about---the US outpaced the global stock return in the 20th century and Sweden outpaced the US---but there's at least an equal chance that my little home market will trail the global. That's the true risk of falling behind.
Thanks for the reply asset_chaos.

I don't have it with me, but I was reading an article saying the Australian stock market out performed international by 9.7% to 7% compounded over the last 30 or so years. That's a difference of turning 125k into either 1m or 2m. Lots of other examples. If you lived in Sydney over the past 10 years and didn't own a house, yet one day would like one, you now need to pay 1m for a house instead of 500k. These are not small differences of a "little" stock market outpacing the global market, as you put it. They are the difference in being able to draw twice the yearly salary from once retirement has been reached.
But you cannot ascertain that looking forward. It's just as likely to underperform, because it has done so well.

From the data I saw, most of the Australian outperformance (of the USA) in the 20th century came in the 1930s and the 1940s? Which is paradoxical given that Australia had one of the worst Great Depressions of any country. It may have to do with Australian politics and reflationary policies in that time.

Australia's economy has not had a recession in 25 years "the lucky country". I am something of a sceptic, to me that just says that the imbalances have built up to a very high degree. If you look at the percentages in the Australian stock index, then that weighting towards banks is scary in that context, because a housing market and consumer bust will hit the banks very hard (I have the same view of Canadian banks, btw). The Australian consumer does look less highly indebted than the Canadian one, from the numbers I saw, so there is that.

The use of housing prices as a benchmark index is problematic. If one wanted a house in Sydney, one should buy a house (or condo) in Sydney. Not try to beat the Sydney house price index with stocks.

I could show you neighbourhoods in London that have far outperformed the stock market. In fact, had I just put my money into London property rather than into pensions, I'd be retired by now ;-). But that's life-- when I arrived in London it was in the midst of a property crash and I had seen another one before I came, and so I was always afraid of a repeat.
I agree with you that there is also a real risk that it falls behind, very possibly a long way. However, I don't see how exactly pointing that out is a legitimate reason to completely ignore that other possibility of it over performing.
It's the scale of bet one is taking. Something is 3% of world markets and one overweights it 10x say. That's a big sectoral risk and it's a big bet on one country's stock market.

https://www.ishares.com/uk/institutiona ... -ucits-etf

tells me 9% is Commonwealth Bank of Australia.

So that would be 2.7% of one's total portfolio (including bonds) invested in *one* Australian bank. Another 2.1% in BHP. That's risk concentration.

andrew99999
Posts: 22
Joined: Fri Jul 13, 2018 8:14 pm

Re: Please look at my portfolio and give me advice [Norway]

Post by andrew99999 » Mon Aug 20, 2018 11:28 am

Valuethinker wrote:
Mon Aug 20, 2018 11:16 am
But you cannot ascertain that looking forward. It's just as likely to underperform, because it has done so well.

My point was not that it will do that going forward.
My point was that having virtually none in your home country provides its own risk.

As to your other points, yes I still agree that there is a significant concentration risk.
My thoughts are that too much and too little home country investment both have their own risks. If someone overweight's it 10x as you said, and it drops 50%, it's not going to cripple you. Also II don't see how your argument of just "work for more years" can not be applied in exactly the same way in that situation.

User avatar
BeBH65
Posts: 1218
Joined: Sat Jul 04, 2015 7:28 am

Re: Please look at my portfolio and give me advice [Norway]

Post by BeBH65 » Mon Aug 20, 2018 12:23 pm

BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

asset_chaos
Posts: 1343
Joined: Tue Feb 27, 2007 6:13 pm
Location: Melbourne

Re: Please look at my portfolio and give me advice [Norway]

Post by asset_chaos » Mon Aug 20, 2018 8:47 pm

For some additional context around investing from a smaller market country, this image from a Vanguard report shows for selected countries that country's global stock market weight (bilious green) and the average investor's percentage of domestic stocks (cyan).

Image

This data suggests that home bias is prevalent. In turn that suggests that if you don't want too much home bias, you will have to swim against the prevailing tide of sentiment in your country. Only the US investor can have both the most home bias and the least overweighting of home market. Of these smaller markets only the UK investor manages to keep a reasonable home overweighting of about 4x. Canadian and Australian investors are up at 20x and 30x home market overweighting. It is perhaps prudent for small market investors to try to be closer to the 4x overweight than to the 30x (or greater) overweight of home markets.
Regards, | | Guy

Valuethinker
Posts: 35636
Joined: Fri May 11, 2007 11:07 am

Re: Please look at my portfolio and give me advice [Norway]

Post by Valuethinker » Tue Aug 21, 2018 3:17 am

andrew99999 wrote:
Mon Aug 20, 2018 11:28 am
Valuethinker wrote:
Mon Aug 20, 2018 11:16 am
But you cannot ascertain that looking forward. It's just as likely to underperform, because it has done so well.

My point was not that it will do that going forward.
My point was that having virtually none in your home country provides its own risk.
But why?

If I lived in Canada, being overweight Canada would not reduce my risk. The Canadian stock market is not representative of the Canadian economy.

(there is a correlation between the TSX/ S&P 60 and Toronto housing prices and economy. That's because the major banks are all HQ'd there. Something similar for Calgary and the oil price).
As to your other points, yes I still agree that there is a significant concentration risk.
My thoughts are that too much and too little home country investment both have their own risks. If someone overweight's it 10x as you said, and it drops 50%, it's not going to cripple you.
You have not defined why "too little" is a risk.

Do you mean currency risk? You can hedge currency risk out of your equity portfolio - currency hedged equity funds and ETFs are readily available.

In terms of tracking the Canadian economy, good luck. You'd have to own quite a few American stocks. After all Tim Horton's is not separately quoted now ;-). I'd rather just own the S&P 500 ;-).

The general approach suggested here is to hedge the currency risk on bonds. However the Canadian Federal government is essentially credit risk free (ditto Australia) so why bother? The cost of the FX hedge will lower (or raise) the yield on an international bond fund to roughly the risk free rate in Canada, so all you are doing is diversifying your credit risk.

On equities the tendency is to assume Purchasing Power Parity holds in the long run so it will all even out. That's not a bad bet although within 10 years of needing the money, it probably becomes a risky bet - the long run is very long run. A Canadian should not be worried about a global portfolio which is 5% Canadian stocks and 55% US stocks (currency unhedged). The Canadian has a job paid in CAD, home equity in CAD and probably has 30-40% of portfolio in CAD paying bonds. The risk of another slump in commodity prices (the Canadian index underperformed the US index through the late 1980s and early 1990s) is a bigger worry.
Also II don't see how your argument of just "work for more years" can not be applied in exactly the same way in that situation.
I never made that argument. You are misquoting.

You have a fixation that holding overweight equities in your home country is "Lower risk" but you don't seem to be able to define why?

It is interesting to me that home country bias has such a mental hold on investors, even on a forum of expert investors like this one.

User avatar
BeBH65
Posts: 1218
Joined: Sat Jul 04, 2015 7:28 am

Re: Please look at my portfolio and give me advice [Norway]

Post by BeBH65 » Tue Aug 21, 2018 3:51 am

This data suggests that home bias is prevalent. In turn that suggests that if you don't want too much home bias, you will have to swim against the prevailing tide of sentiment in your country.
In the past I had discussions on this home bias reducing risk. In that case the "risk" that the other party was highlighting was the risk of having a different return then the neighbour that has the home bias.

In many countries there seems to be a "habit" of home bias.
While the home equity market would not be representative of the home economy, the return of the home equity market might be representative of the return of the neighbour. And if you have a portfolio that is widely diversified over the whole world then indeed there is a "risk" that your neigbour might have different, maybe higher returns.

You need to compare this "risk" to the risk of a portfolio that is concentrated geograohically, as well as in sectors, as well as in individual stocks.

Personally, as resident of a small country I have chosen to diversify my portfolio over the whole world and adresss these latter risks, knowing that there is a risk that my neighbour will have a different, maybe better, return.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

andrew99999
Posts: 22
Joined: Fri Jul 13, 2018 8:14 pm

Re: Please look at my portfolio and give me advice [Norway]

Post by andrew99999 » Fri Aug 24, 2018 12:11 am

Valuethinker wrote:
Tue Aug 21, 2018 3:17 am
andrew99999 wrote:
Mon Aug 20, 2018 11:28 am
Valuethinker wrote:
Mon Aug 20, 2018 11:16 am
But you cannot ascertain that looking forward. It's just as likely to underperform, because it has done so well.

My point was not that it will do that going forward.
My point was that having virtually none in your home country provides its own risk.
But why?

If I lived in Canada, being overweight Canada would not reduce my risk. The Canadian stock market is not representative of the Canadian economy.
Currency movements take decades to normalise.
Lets say you retired in 2000 when the 1 AUD was 0.50 USD.
Over the next 11 years, the AUD more than doubled vs the USD, and until now (almost 2 decades later), it is still 1.5x

How do you figure that withdrawing 4% per year based in AUD over the last 20 years would not have had had a serious negative impact on an all-world market cap fund compared to an Australian index?
The value and returns of Australian companies are in Australian dollars.
The value and returns of non-Australian companies are not.
If you hold nothing in your own country, when the currency moves ahead (for decades), your return moves with it (for decades).
I don't understand how this is any different to SOR risk.

Valuethinker
Posts: 35636
Joined: Fri May 11, 2007 11:07 am

Re: Please look at my portfolio and give me advice [Norway]

Post by Valuethinker » Fri Aug 24, 2018 2:56 am

andrew99999 wrote:
Fri Aug 24, 2018 12:11 am
Valuethinker wrote:
Tue Aug 21, 2018 3:17 am
andrew99999 wrote:
Mon Aug 20, 2018 11:28 am
Valuethinker wrote:
Mon Aug 20, 2018 11:16 am
But you cannot ascertain that looking forward. It's just as likely to underperform, because it has done so well.

My point was not that it will do that going forward.
My point was that having virtually none in your home country provides its own risk.
But why?

If I lived in Canada, being overweight Canada would not reduce my risk. The Canadian stock market is not representative of the Canadian economy.
Currency movements take decades to normalise.
Lets say you retired in 2000 when the 1 AUD was 0.50 USD.
Over the next 11 years, the AUD more than doubled vs the USD, and until now (almost 2 decades later), it is still 1.5x

How do you figure that withdrawing 4% per year based in AUD over the last 20 years would not have had had a serious negative impact on an all-world market cap fund compared to an Australian index?
The value and returns of Australian companies are in Australian dollars.
The value and returns of non-Australian companies are not.
If you hold nothing in your own country, when the currency moves ahead (for decades), your return moves with it (for decades).
I don't understand how this is any different to SOR risk.
Then simply buy a currency hedged global equity fund. You don't have to only be in the Australian market to zero out currency risk.

The problem with owning Australian stocks (or Canadian) is the intense concentration of those indices. c. 40% banks and financials, c. 80% that plus natural resources (energy and other). In effect one is taking a huge bet on Chinese economic growth (the marginal buyer for raw materials, thus driving commodity prices) and on the domestic housing market (the biggest single deployment of capital/ source of profits for the Canadian banks and the Australian ones is the local consumer and lending which is, in the end, property backed).

A global index is far more diversified.

Post Reply