Slightly overweighted on international - time to adjust AA?

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bismarck23
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Slightly overweighted on international - time to adjust AA?

Post by bismarck23 »

When I set up a formal asset allocation a few years ago, I went a little heavy on international:
  • 20% US large-cap
  • 15% US mid and small cap
  • 35% broad-market international stock
  • 5% emerging markets
  • 15% bonds
  • 10% real estate and commodities
There were a few reasons - I wasn't sure what the real cap weightings were, I remember international doing really well while I was growing up, was concerned about the US political situation - but it wasn't a well thought out decision.

Fast-forward to today, when US stocks have significantly outperformed international since then. I've rebalanced to the above AA diligently and therefore missed out on some growth from domestic stocks (but overall financial situation is fine). From what I understand, the US/international cap weightings are something like 55/45, and the general recommendation I've seen is to go no more than this cap weighing for the equity portion of my portfolio. I'm 75% equities so that would be something like 40% US/35% int'l compared to the 35%/40% I'm at now. On the other hand, international equities have a lower valuation (P/E ratio) than US equities, so maybe it's a good bet they will have higher returns going forward. Should I adjust my AA or stick with what I've got for now?

Personal details: married, late 30's, live in California, $450k HHI, $3.5M net worth, $1.5M of which is invested according to the above AA (the rest being private equity, home equity, 529's, emergency fund, etc)
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burritoLover
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Re: Slightly overweighted on international - time to adjust AA?

Post by burritoLover »

It’s simple - if international had significantly outperformed the US would you honestly be considering the same change? If no, then, no you shouldn’t change as you are just performance chasing.
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vineviz
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Re: Slightly overweighted on international - time to adjust AA?

Post by vineviz »

Stick with your original plan.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Slightly overweighted on international - time to adjust AA?

Post by rockAction »

I'd listen to Vineviz.
33% Tot US Stock | 10% Int Developed | 10% Int SCV | 10% EM | 15% Treasuries | 22% TIPS || Age 45 | Semi-retired
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Re: Slightly overweighted on international - time to adjust AA?

Post by nisiprius »

I dislike international stocks--my target is 20% of stocks--but my personal answer is "no," for these reasons.

First, the answer to any question with the phrase "is it time" or "is it a good time" is always "no."

Second, part of the trick to "staying the course" is to admit that there is a large element of chance in portfolio growth, and that the part that's under your control through portfolio decisions is relatively small and therefore one should just let things go and not kid yourself that you are making exquisitely delicate corrections each of which is incrementally piling dollars into your final outcome.

Whatever you hope to achieve in life with 40% of your stocks international, you will achieve whether it's 45% or 35%. One way to see this is to run some PortfolioVisualizer backtests, not to see what's best, but to see what the amount of sensitivity there is. For example:

Details including actual portfolio composition

Image

That's the difference you'd have seen if you'd been 40%, 45%, or 35% international that whole time.

The harm in doing frequent adjustments and annual reviews and so forth is that you get sucked into tinkering, and soon your portfolio is starting to resonate to the rhythm of fads and fashions.

The opinion of William J. Bernstein deserves some weight because he co-authored an article that publicized the phrase "rebalancing bonus:"
Is there any reason to believe that, on average, rebalancing will help more than it hurts? Not if we believe that market movements are random. After all, we rebalance with the hope that an asset with past higher/lower than average returns will have future lower/higher than average returns.

Is this actually true? Probably. Recall that over short periods of time asset classes display momentum, but that over periods of time over a year or longer tend to mean-revert....

Rebalance your portfolio approximately once every few years; more than once per year is probably too often. In taxable portfolios, do so even less frequently.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
sureshoe
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Re: Slightly overweighted on international - time to adjust AA?

Post by sureshoe »

Constant tinkering is a risk. However, "Staying the course" can also be a bit too blanket (change course when heading toward a waterfall). You know how often you're actually tinkering.

It's hard for me to be impartial because I don't love you're allocation. It's also a little unclear on how holistic you're thinking if you have a net worth of $3.5M, but the above allocation represents less than 50% of that. If the "private equity" is all US based, then your actual allocation is much different - so I think those things matter.

As for rebalancing/tinkering/etc. I would think that as domestic has outperformed, it adjusts closer to your preferred allocation (unless you're auto-rebalancing to the above percentages). Also, rather than a hard rebalance, you could just change your contributions, which is much more gradual.
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Re: Slightly overweighted on international - time to adjust AA?

Post by vanbogle59 »

bismarck23 wrote: Fri Jan 14, 2022 2:42 am it wasn't a well thought out decision.
I have trouble sticking to my IPS, and it's a very "well thought out decision". :shock:

Mine might be "wrong", but I certainly put a lot of time and effort into it. Spent a lot of time looking in the mirror. I understand why I did it. I think I know it's plusses and minusses..... Bottom line: I have some confidence that I will stick with my IPS during the next market tragedy.

My guess is you need to put in the work to get to a similar place.
:sharebeer
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bismarck23
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Re: Slightly overweighted on international - time to adjust AA?

Post by bismarck23 »

sureshoe wrote: Fri Jan 14, 2022 8:38 am Constant tinkering is a risk. However, "Staying the course" can also be a bit too blanket (change course when heading toward a waterfall). You know how often you're actually tinkering.

It's hard for me to be impartial because I don't love you're allocation. It's also a little unclear on how holistic you're thinking if you have a net worth of $3.5M, but the above allocation represents less than 50% of that. If the "private equity" is all US based, then your actual allocation is much different - so I think those things matter.

As for rebalancing/tinkering/etc. I would think that as domestic has outperformed, it adjusts closer to your preferred allocation (unless you're auto-rebalancing to the above percentages). Also, rather than a hard rebalance, you could just change your contributions, which is much more gradual.
I have about $1m in equity in a private company. I wrote about it in another thread. The company is domestic but for various reasons I have not been including those assets in my overall AA- mostly because it should have low correlation to the overall equity market.

I also have about $400k in home equity. The rest is emergency funds, checking account float that is not investable, 529, etc. I rounded off numbers slightly but can give more accurate figures if it would make a difference.

So far I have not needed to do big rebalances. I usually just direct new contributions into the lowest performing asset class and that has worked out well.
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bismarck23
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Re: Slightly overweighted on international - time to adjust AA?

Post by bismarck23 »

vanbogle59 wrote: Fri Jan 14, 2022 8:54 am
bismarck23 wrote: Fri Jan 14, 2022 2:42 am it wasn't a well thought out decision.
I have trouble sticking to my IPS, and it's a very "well thought out decision". :shock:

Mine might be "wrong", but I certainly put a lot of time and effort into it. Spent a lot of time looking in the mirror. I understand why I did it. I think I know it's plusses and minusses..... Bottom line: I have some confidence that I will stick with my IPS during the next market tragedy.

My guess is you need to put in the work to get to a similar place.
:sharebeer
Thanks. Clearly if I had some entirely inappropriate AA, like 100% bonds, it would make sense to throw that out and get a new one regardless of current market conditions or past performance. My AA isn't in that category, but I think the Bogleheads philosophy is to pick a "good" AA for one's situation and stick to it. If my AA isn't "good", or if there is a "better" one, it probably makes sense to switch to it now. This is kinda what I'm asking here. We're relatively young and looking for growth, tolerant of risks, overall in a good financial situation, if a little bit cash-flow crunched right now. We had a $35,000 surplus last year on about $450,000 of gross income, though still managed to save 40% of gross.
WhenIsItTime
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Re: Slightly overweighted on international - time to adjust AA?

Post by WhenIsItTime »

bismarck23 wrote: Fri Jan 14, 2022 6:56 pm
vanbogle59 wrote: Fri Jan 14, 2022 8:54 am
bismarck23 wrote: Fri Jan 14, 2022 2:42 am it wasn't a well thought out decision.
I have trouble sticking to my IPS, and it's a very "well thought out decision". :shock:

Mine might be "wrong", but I certainly put a lot of time and effort into it. Spent a lot of time looking in the mirror. I understand why I did it. I think I know it's plusses and minusses..... Bottom line: I have some confidence that I will stick with my IPS during the next market tragedy.

My guess is you need to put in the work to get to a similar place.
:sharebeer
Thanks. Clearly if I had some entirely inappropriate AA, like 100% bonds, it would make sense to throw that out and get a new one regardless of current market conditions or past performance. My AA isn't in that category, but I think the Bogleheads philosophy is to pick a "good" AA for one's situation and stick to it. If my AA isn't "good", or if there is a "better" one, it probably makes sense to switch to it now. This is kinda what I'm asking here. We're relatively young and looking for growth, tolerant of risks, overall in a good financial situation, if a little bit cash-flow crunched right now. We had a $35,000 surplus last year on about $450,000 of gross income, though still managed to save 40% of gross.
I'd vote for lower AA to Int'l, although you need to decide for yourself what your total invested assets are (give or take the private investment). Not sure if a change triggers taxes, but I'd be adjusting it down. Personally, I do 0% to specific Int'l funds. S&P500 revenue is 35% outside U.S. For sure their manufacturing/supply chain whether owned or outsourced is diverse. Furthermore, employees will be globally distributed. I feel the S&P500 is more global than people give it credit and geographically diverse enough when considering economic, environmental, employee relation, etc. risks.

I think the stay safe, don't change anything comments get a little overdone. If someone had a formal investment policy like a company or endowment might, I would think a 5% change in strategy or reacting to a 5% change caused by the market would be appropriate. I say this agreeing that any one of these changes isn't likely to have a significant impact on the end result. Arguably, strategy should be fairly constant until a life or similarly significant event needs to be addressed.
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Re: Slightly overweighted on international - time to adjust AA?

Post by vineviz »

bismarck23 wrote: Fri Jan 14, 2022 6:56 pm My AA isn't in that category, but I think the Bogleheads philosophy is to pick a "good" AA for one's situation and stick to it. If my AA isn't "good", or if there is a "better" one, it probably makes sense to switch to it now. This is kinda what I'm asking here.
Your AA is certainly "good". Maybe not great (I don't love the REIT and commodity allocation), but it's totally fine.

If we assume the REITs are mostly US REITS then your overall US vs international split is 50/50, which is totally sane.

As a young investor, one of the best gifts you can give yourself is a perversely strong resistance to the urge to chase recent performance. One way you can do that is to build some rules to prevent it, such as "never reduce the target allocation to an asset class which has underperformed over the trailing 3-year period". In the same way that many legal entities strive to avoid even the appearance of a conflict of interest, you should avoid any investment behavior that has even the appearance of performance chasing.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
visualguy
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Re: Slightly overweighted on international - time to adjust AA?

Post by visualguy »

vineviz wrote: Fri Jan 14, 2022 9:00 pm As a young investor, one of the best gifts you can give yourself is a perversely strong resistance to the urge to chase recent performance. One way you can do that is to build some rules to prevent it, such as "never reduce the target allocation to an asset class which has underperformed over the trailing 3-year period". In the same way that many legal entities strive to avoid even the appearance of a conflict of interest, you should avoid any investment behavior that has even the appearance of performance chasing.
How is that compatible with indexing? It does exactly what you recommend avoiding. It's inherently performance chasing... For example, as tech stocks out-perform, a larger and larger percentage of your holdings is allocated to them, and vice versa. If you're invested in VT, the US allocation increases as the US out-performs, and the ex-US allocation is decreased as it under-performs. I don't see how it's possible to be so against performance chasing, yet have no problem with cap-weighted indexing.
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vineviz
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Re: Slightly overweighted on international - time to adjust AA?

Post by vineviz »

visualguy wrote: Sat Jan 15, 2022 4:16 pm
vineviz wrote: Fri Jan 14, 2022 9:00 pm As a young investor, one of the best gifts you can give yourself is a perversely strong resistance to the urge to chase recent performance. One way you can do that is to build some rules to prevent it, such as "never reduce the target allocation to an asset class which has underperformed over the trailing 3-year period". In the same way that many legal entities strive to avoid even the appearance of a conflict of interest, you should avoid any investment behavior that has even the appearance of performance chasing.
How is that compatible with indexing? It does exactly what you recommend avoiding. It's inherently performance chasing... For example, as tech stocks out-perform, a larger and larger percentage of your holdings is allocated to them, and vice versa. If you're invested in VT, the US allocation increases as the US out-performs, and the ex-US allocation is decreased as it under-performs. I don't see how it's possible to be so against performance chasing, yet have no problem with cap-weighted indexing.
My statement above relates to an active investor behavior, eg increasing the target allocation to an asset or asset class because it had strong past performance.

Passively accepting drift within an index fund is typically much less damaging than actively chasing past winners.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Slightly overweighted on international - time to adjust AA?

Post by TropikThunder »

visualguy wrote: Sat Jan 15, 2022 4:16 pm
vineviz wrote: Fri Jan 14, 2022 9:00 pm As a young investor, one of the best gifts you can give yourself is a perversely strong resistance to the urge to chase recent performance. One way you can do that is to build some rules to prevent it, such as "never reduce the target allocation to an asset class which has underperformed over the trailing 3-year period". In the same way that many legal entities strive to avoid even the appearance of a conflict of interest, you should avoid any investment behavior that has even the appearance of performance chasing.
How is that compatible with indexing? It does exactly what you recommend avoiding. It's inherently performance chasing... For example, as tech stocks out-perform, a larger and larger percentage of your holdings is allocated to them, and vice versa. If you're invested in VT, the US allocation increases as the US out-performs, and the ex-US allocation is decreased as it under-performs. I don't see how it's possible to be so against performance chasing, yet have no problem with cap-weighted indexing.
So if I buy VTI and never ever sell, but over time Apple and Microsoft and Tesla become a larger and larger part of the index, I'm performance chasing? That's ridiculous.
visualguy wrote: Sat Jan 15, 2022 4:16 pm I don't see how it's possible to be so against performance chasing, yet have no problem with cap-weighted indexing.
It's not chasing if you don't change anything.
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bismarck23
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Re: Slightly overweighted on international - time to adjust AA?

Post by bismarck23 »

vineviz wrote: Fri Jan 14, 2022 9:00 pm
bismarck23 wrote: Fri Jan 14, 2022 6:56 pm My AA isn't in that category, but I think the Bogleheads philosophy is to pick a "good" AA for one's situation and stick to it. If my AA isn't "good", or if there is a "better" one, it probably makes sense to switch to it now. This is kinda what I'm asking here.
Your AA is certainly "good". Maybe not great (I don't love the REIT and commodity allocation), but it's totally fine.

If we assume the REITs are mostly US REITS then your overall US vs international split is 50/50, which is totally sane.

As a young investor, one of the best gifts you can give yourself is a perversely strong resistance to the urge to chase recent performance. One way you can do that is to build some rules to prevent it, such as "never reduce the target allocation to an asset class which has underperformed over the trailing 3-year period". In the same way that many legal entities strive to avoid even the appearance of a conflict of interest, you should avoid any investment behavior that has even the appearance of performance chasing.
Thanks. For what it's worth, my real estate/commodities allocation is:

6% QEWARX (TIAA Real Estate Fund)
3% SCHH (Schwab REIT index fund)
1% BGEIX (American Century Global Gold)

I also own a ~$2.3M home that's leveraged with a $1.5M mortgage, so there's some real estate exposure there too that's not included in my AA.
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Re: Slightly overweighted on international - time to adjust AA?

Post by visualguy »

TropikThunder wrote: Sat Jan 15, 2022 5:37 pm
visualguy wrote: Sat Jan 15, 2022 4:16 pm
vineviz wrote: Fri Jan 14, 2022 9:00 pm As a young investor, one of the best gifts you can give yourself is a perversely strong resistance to the urge to chase recent performance. One way you can do that is to build some rules to prevent it, such as "never reduce the target allocation to an asset class which has underperformed over the trailing 3-year period". In the same way that many legal entities strive to avoid even the appearance of a conflict of interest, you should avoid any investment behavior that has even the appearance of performance chasing.
How is that compatible with indexing? It does exactly what you recommend avoiding. It's inherently performance chasing... For example, as tech stocks out-perform, a larger and larger percentage of your holdings is allocated to them, and vice versa. If you're invested in VT, the US allocation increases as the US out-performs, and the ex-US allocation is decreased as it under-performs. I don't see how it's possible to be so against performance chasing, yet have no problem with cap-weighted indexing.
So if I buy VTI and never ever sell, but over time Apple and Microsoft and Tesla become a larger and larger part of the index, I'm performance chasing? That's ridiculous.
visualguy wrote: Sat Jan 15, 2022 4:16 pm I don't see how it's possible to be so against performance chasing, yet have no problem with cap-weighted indexing.
It's not chasing if you don't change anything.
You're not changing your investment vehicle, but the cap-weighted index fund you use (VTI, VT, etc.) is changing its composition based on performance. The passive cap-weighted indexing strategy is a performance chasing strategy at its very core. Guess what... It still works pretty well, so maybe there's something good about performance chasing.
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Re: Slightly overweighted on international - time to adjust AA?

Post by abuss368 »

vineviz wrote: Sat Jan 15, 2022 5:11 pm
visualguy wrote: Sat Jan 15, 2022 4:16 pm
vineviz wrote: Fri Jan 14, 2022 9:00 pm As a young investor, one of the best gifts you can give yourself is a perversely strong resistance to the urge to chase recent performance. One way you can do that is to build some rules to prevent it, such as "never reduce the target allocation to an asset class which has underperformed over the trailing 3-year period". In the same way that many legal entities strive to avoid even the appearance of a conflict of interest, you should avoid any investment behavior that has even the appearance of performance chasing.
How is that compatible with indexing? It does exactly what you recommend avoiding. It's inherently performance chasing... For example, as tech stocks out-perform, a larger and larger percentage of your holdings is allocated to them, and vice versa. If you're invested in VT, the US allocation increases as the US out-performs, and the ex-US allocation is decreased as it under-performs. I don't see how it's possible to be so against performance chasing, yet have no problem with cap-weighted indexing.
My statement above relates to an active investor behavior, eg increasing the target allocation to an asset or asset class because it had strong past performance.

Passively accepting drift within an index fund is typically much less damaging than actively chasing past winners.
This makes so much sense. The further I go in my investment journey, the more I have a better appreciation and understanding of the impact of investor behavior.

Thanks sir.
Tony
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Re: Slightly overweighted on international - time to adjust AA?

Post by vineviz »

visualguy wrote: Sat Jan 15, 2022 6:10 pm The passive cap-weighted indexing strategy is a performance chasing strategy at its very core.
There is no reasonable definition of "performance chasing" that includes buying and holding a market cap weighted index fund.

Not only does that involve no "chasing" by the investor, but there is no chasing by the index either: index funds don't buy more of a security after its price increases.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Slightly overweighted on international - time to adjust AA?

Post by visualguy »

vineviz wrote: Sat Jan 15, 2022 6:18 pm
visualguy wrote: Sat Jan 15, 2022 6:10 pm The passive cap-weighted indexing strategy is a performance chasing strategy at its very core.
There is no reasonable definition of "performance chasing" that includes buying and holding a market cap weighted index fund.

Not only does that involve no "chasing" by the investor, but there is no chasing by the index either: index funds don't buy more of a security after its price increases.
I don't know what else to call holding a higher or lower percentage based on performance, which is exactly what these cap-weighted index funds do. I don't have a problem with it, but I recognize it for what it is. If I hold VTI or VT or similar, I am performance chasing which I can easily see by how the composition of the underlying holdings change with time.

For example, if I buy VT now, I'm buying about 60% US. When bought, say, 15 years ago, the US percentage was significantly lower. Why? Performance. Similarly, look at how the weight of China in VXUS changed in recent times.
Last edited by visualguy on Sat Jan 15, 2022 6:42 pm, edited 2 times in total.
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Re: Slightly overweighted on international - time to adjust AA?

Post by JBTX »

bismarck23 wrote: Fri Jan 14, 2022 2:42 am When I set up a formal asset allocation a few years ago, I went a little heavy on international:
  • 20% US large-cap
  • 15% US mid and small cap
  • 35% broad-market international stock
  • 5% emerging markets
  • 15% bonds
  • 10% real estate and commodities
There were a few reasons - I wasn't sure what the real cap weightings were, I remember international doing really well while I was growing up, was concerned about the US political situation - but it wasn't a well thought out decision.

Fast-forward to today, when US stocks have significantly outperformed international since then. I've rebalanced to the above AA diligently and therefore missed out on some growth from domestic stocks (but overall financial situation is fine). From what I understand, the US/international cap weightings are something like 55/45, and the general recommendation I've seen is to go no more than this cap weighing for the equity portion of my portfolio. I'm 75% equities so that would be something like 40% US/35% int'l compared to the 35%/40% I'm at now. On the other hand, international equities have a lower valuation (P/E ratio) than US equities, so maybe it's a good bet they will have higher returns going forward. Should I adjust my AA or stick with what I've got for now?

Personal details: married, late 30's, live in California, $450k HHI, $3.5M net worth, $1.5M of which is invested according to the above AA (the rest being private equity, home equity, 529's, emergency fund, etc)
As an FYI global market is now almost 60% US.

https://www.morningstar.com/etfs/arcx/vt/portfolio
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Re: Slightly overweighted on international - time to adjust AA?

Post by abuss368 »

JBTX wrote: Sat Jan 15, 2022 6:30 pm
bismarck23 wrote: Fri Jan 14, 2022 2:42 am When I set up a formal asset allocation a few years ago, I went a little heavy on international:
  • 20% US large-cap
  • 15% US mid and small cap
  • 35% broad-market international stock
  • 5% emerging markets
  • 15% bonds
  • 10% real estate and commodities
There were a few reasons - I wasn't sure what the real cap weightings were, I remember international doing really well while I was growing up, was concerned about the US political situation - but it wasn't a well thought out decision.

Fast-forward to today, when US stocks have significantly outperformed international since then. I've rebalanced to the above AA diligently and therefore missed out on some growth from domestic stocks (but overall financial situation is fine). From what I understand, the US/international cap weightings are something like 55/45, and the general recommendation I've seen is to go no more than this cap weighing for the equity portion of my portfolio. I'm 75% equities so that would be something like 40% US/35% int'l compared to the 35%/40% I'm at now. On the other hand, international equities have a lower valuation (P/E ratio) than US equities, so maybe it's a good bet they will have higher returns going forward. Should I adjust my AA or stick with what I've got for now?

Personal details: married, late 30's, live in California, $450k HHI, $3.5M net worth, $1.5M of which is invested according to the above AA (the rest being private equity, home equity, 529's, emergency fund, etc)
As an FYI global market is now almost 60% US.

https://www.morningstar.com/etfs/arcx/vt/portfolio
Interesting. So essentially Vanguard’s Target and Lifestrategy funds have equity allocations (for the moment) at world market cap.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Slightly overweighted on international - time to adjust AA?

Post by vineviz »

visualguy wrote: Sat Jan 15, 2022 6:27 pm
I don't know what else to call holding a higher or lower percentage based on performance, which is exactly what these cap-weighted index funds do.
Call it what it is: passive investing, or indexing.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Slightly overweighted on international - time to adjust AA?

Post by JBTX »

abuss368 wrote: Sat Jan 15, 2022 6:38 pm
JBTX wrote: Sat Jan 15, 2022 6:30 pm
bismarck23 wrote: Fri Jan 14, 2022 2:42 am When I set up a formal asset allocation a few years ago, I went a little heavy on international:
  • 20% US large-cap
  • 15% US mid and small cap
  • 35% broad-market international stock
  • 5% emerging markets
  • 15% bonds
  • 10% real estate and commodities
There were a few reasons - I wasn't sure what the real cap weightings were, I remember international doing really well while I was growing up, was concerned about the US political situation - but it wasn't a well thought out decision.

Fast-forward to today, when US stocks have significantly outperformed international since then. I've rebalanced to the above AA diligently and therefore missed out on some growth from domestic stocks (but overall financial situation is fine). From what I understand, the US/international cap weightings are something like 55/45, and the general recommendation I've seen is to go no more than this cap weighing for the equity portion of my portfolio. I'm 75% equities so that would be something like 40% US/35% int'l compared to the 35%/40% I'm at now. On the other hand, international equities have a lower valuation (P/E ratio) than US equities, so maybe it's a good bet they will have higher returns going forward. Should I adjust my AA or stick with what I've got for now?

Personal details: married, late 30's, live in California, $450k HHI, $3.5M net worth, $1.5M of which is invested according to the above AA (the rest being private equity, home equity, 529's, emergency fund, etc)
As an FYI global market is now almost 60% US.

https://www.morningstar.com/etfs/arcx/vt/portfolio
Interesting. So essentially Vanguard’s Target and Lifestrategy funds have equity allocations (for the moment) at world market cap.

Tony
Think about it. The US market cap is 50% higher than the rest of the entire world combined. While anything is possible it seems unlikely that it would go significantly higher than that.
TropikThunder
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Re: Slightly overweighted on international - time to adjust AA?

Post by TropikThunder »

JBTX wrote: Sat Jan 15, 2022 7:06 pm
abuss368 wrote: Sat Jan 15, 2022 6:38 pm Interesting. So essentially Vanguard’s Target and Lifestrategy funds have equity allocations (for the moment) at world market cap.

Tony
Think about it. The US market cap is 50% higher than the rest of the entire world combined. While anything is possible it seems unlikely that it would go significantly higher than that.
I'd like to see some of the US-only folks opine on just how large the US portion can get, given they feel "Int'l will never outperform US".
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Re: Slightly overweighted on international - time to adjust AA?

Post by abuss368 »

JBTX wrote: Sat Jan 15, 2022 7:06 pm
abuss368 wrote: Sat Jan 15, 2022 6:38 pm
JBTX wrote: Sat Jan 15, 2022 6:30 pm
bismarck23 wrote: Fri Jan 14, 2022 2:42 am When I set up a formal asset allocation a few years ago, I went a little heavy on international:
  • 20% US large-cap
  • 15% US mid and small cap
  • 35% broad-market international stock
  • 5% emerging markets
  • 15% bonds
  • 10% real estate and commodities
There were a few reasons - I wasn't sure what the real cap weightings were, I remember international doing really well while I was growing up, was concerned about the US political situation - but it wasn't a well thought out decision.

Fast-forward to today, when US stocks have significantly outperformed international since then. I've rebalanced to the above AA diligently and therefore missed out on some growth from domestic stocks (but overall financial situation is fine). From what I understand, the US/international cap weightings are something like 55/45, and the general recommendation I've seen is to go no more than this cap weighing for the equity portion of my portfolio. I'm 75% equities so that would be something like 40% US/35% int'l compared to the 35%/40% I'm at now. On the other hand, international equities have a lower valuation (P/E ratio) than US equities, so maybe it's a good bet they will have higher returns going forward. Should I adjust my AA or stick with what I've got for now?

Personal details: married, late 30's, live in California, $450k HHI, $3.5M net worth, $1.5M of which is invested according to the above AA (the rest being private equity, home equity, 529's, emergency fund, etc)
As an FYI global market is now almost 60% US.

https://www.morningstar.com/etfs/arcx/vt/portfolio
Interesting. So essentially Vanguard’s Target and Lifestrategy funds have equity allocations (for the moment) at world market cap.

Tony
Think about it. The US market cap is 50% higher than the rest of the entire world combined. While anything is possible it seems unlikely that it would go significantly higher than that.
Good point. Perhaps there is a reason for that however.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
JBTX
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Re: Slightly overweighted on international - time to adjust AA?

Post by JBTX »

TropikThunder wrote: Sat Jan 15, 2022 7:11 pm
JBTX wrote: Sat Jan 15, 2022 7:06 pm
abuss368 wrote: Sat Jan 15, 2022 6:38 pm Interesting. So essentially Vanguard’s Target and Lifestrategy funds have equity allocations (for the moment) at world market cap.

Tony
Think about it. The US market cap is 50% higher than the rest of the entire world combined. While anything is possible it seems unlikely that it would go significantly higher than that.
I'd like to see some of the US-only folks opine on just how large the US portion can get, given they feel "Int'l will never outperform US".
https://www.fool.com/investing/2017/05/ ... om-19.aspx

In 1989 Japan was 45% market cap, and US was 33%. In 2022 Japan is about 6%.
JBTX
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Re: Slightly overweighted on international - time to adjust AA?

Post by JBTX »

abuss368 wrote: Sat Jan 15, 2022 7:18 pm
JBTX wrote: Sat Jan 15, 2022 7:06 pm
abuss368 wrote: Sat Jan 15, 2022 6:38 pm
JBTX wrote: Sat Jan 15, 2022 6:30 pm
bismarck23 wrote: Fri Jan 14, 2022 2:42 am When I set up a formal asset allocation a few years ago, I went a little heavy on international:
  • 20% US large-cap
  • 15% US mid and small cap
  • 35% broad-market international stock
  • 5% emerging markets
  • 15% bonds
  • 10% real estate and commodities
There were a few reasons - I wasn't sure what the real cap weightings were, I remember international doing really well while I was growing up, was concerned about the US political situation - but it wasn't a well thought out decision.

Fast-forward to today, when US stocks have significantly outperformed international since then. I've rebalanced to the above AA diligently and therefore missed out on some growth from domestic stocks (but overall financial situation is fine). From what I understand, the US/international cap weightings are something like 55/45, and the general recommendation I've seen is to go no more than this cap weighing for the equity portion of my portfolio. I'm 75% equities so that would be something like 40% US/35% int'l compared to the 35%/40% I'm at now. On the other hand, international equities have a lower valuation (P/E ratio) than US equities, so maybe it's a good bet they will have higher returns going forward. Should I adjust my AA or stick with what I've got for now?

Personal details: married, late 30's, live in California, $450k HHI, $3.5M net worth, $1.5M of which is invested according to the above AA (the rest being private equity, home equity, 529's, emergency fund, etc)
As an FYI global market is now almost 60% US.

https://www.morningstar.com/etfs/arcx/vt/portfolio
Interesting. So essentially Vanguard’s Target and Lifestrategy funds have equity allocations (for the moment) at world market cap.

Tony
Think about it. The US market cap is 50% higher than the rest of the entire world combined. While anything is possible it seems unlikely that it would go significantly higher than that.
Good point. Perhaps there is a reason for that however.

Tony
Of course there is a reason. But the question becomes is the reason correct, and will that reason persist over time.
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abuss368
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Re: Slightly overweighted on international - time to adjust AA?

Post by abuss368 »

JBTX wrote: Sat Jan 15, 2022 7:20 pm
abuss368 wrote: Sat Jan 15, 2022 7:18 pm
JBTX wrote: Sat Jan 15, 2022 7:06 pm
abuss368 wrote: Sat Jan 15, 2022 6:38 pm
JBTX wrote: Sat Jan 15, 2022 6:30 pm

As an FYI global market is now almost 60% US.

https://www.morningstar.com/etfs/arcx/vt/portfolio
Interesting. So essentially Vanguard’s Target and Lifestrategy funds have equity allocations (for the moment) at world market cap.

Tony
Think about it. The US market cap is 50% higher than the rest of the entire world combined. While anything is possible it seems unlikely that it would go significantly higher than that.
Good point. Perhaps there is a reason for that however.

Tony
Of course there is a reason. But the question becomes is the reason correct, and will that reason persist over time.
Valid point and one of the reasons I like the old saying “No one knows nuttin”!

What is your US an International stock and bond allocation?

Tony
John C. Bogle: “Simplicity is the master key to financial success."
JBTX
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Re: Slightly overweighted on international - time to adjust AA?

Post by JBTX »

abuss368 wrote: Sat Jan 15, 2022 7:25 pm
JBTX wrote: Sat Jan 15, 2022 7:20 pm
abuss368 wrote: Sat Jan 15, 2022 7:18 pm
JBTX wrote: Sat Jan 15, 2022 7:06 pm
abuss368 wrote: Sat Jan 15, 2022 6:38 pm

Interesting. So essentially Vanguard’s Target and Lifestrategy funds have equity allocations (for the moment) at world market cap.

Tony
Think about it. The US market cap is 50% higher than the rest of the entire world combined. While anything is possible it seems unlikely that it would go significantly higher than that.
Good point. Perhaps there is a reason for that however.

Tony
Of course there is a reason. But the question becomes is the reason correct, and will that reason persist over time.
Valid point and one of the reasons I like the old saying “No one knows nuttin”!

What is your US an International stock and bond allocation?

Tony
Basically about 60/40 us/international.
visualguy
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Re: Slightly overweighted on international - time to adjust AA?

Post by visualguy »

vineviz wrote: Sat Jan 15, 2022 7:03 pm
visualguy wrote: Sat Jan 15, 2022 6:27 pm
I don't know what else to call holding a higher or lower percentage based on performance, which is exactly what these cap-weighted index funds do.
Call it what it is: passive investing, or indexing.
The key descriptor is actually "cap-weighted", which means driven by performance. I can't say my investments are cap- weighted, but I'm against performance chasing, because that's exactly what I'm doing. Buying a higher and higher percentage with stocks whose price increased, and a lower and lower percentage with stocks whose price decreased.
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Re: Slightly overweighted on international - time to adjust AA?

Post by abuss368 »

JBTX wrote: Sat Jan 15, 2022 7:28 pm
abuss368 wrote: Sat Jan 15, 2022 7:25 pm
JBTX wrote: Sat Jan 15, 2022 7:20 pm
abuss368 wrote: Sat Jan 15, 2022 7:18 pm
JBTX wrote: Sat Jan 15, 2022 7:06 pm

Think about it. The US market cap is 50% higher than the rest of the entire world combined. While anything is possible it seems unlikely that it would go significantly higher than that.
Good point. Perhaps there is a reason for that however.

Tony
Of course there is a reason. But the question becomes is the reason correct, and will that reason persist over time.
Valid point and one of the reasons I like the old saying “No one knows nuttin”!

What is your US an International stock and bond allocation?

Tony
Basically about 60/40 us/international.
40% international stock and 40% international bond?
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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nedsaid
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Re: Slightly overweighted on international - time to adjust AA?

Post by nedsaid »

vineviz wrote: Fri Jan 14, 2022 9:00 pm
bismarck23 wrote: Fri Jan 14, 2022 6:56 pm My AA isn't in that category, but I think the Bogleheads philosophy is to pick a "good" AA for one's situation and stick to it. If my AA isn't "good", or if there is a "better" one, it probably makes sense to switch to it now. This is kinda what I'm asking here.
Your AA is certainly "good". Maybe not great (I don't love the REIT and commodity allocation), but it's totally fine.

If we assume the REITs are mostly US REITS then your overall US vs international split is 50/50, which is totally sane.

As a young investor, one of the best gifts you can give yourself is a perversely strong resistance to the urge to chase recent performance. One way you can do that is to build some rules to prevent it, such as "never reduce the target allocation to an asset class which has underperformed over the trailing 3-year period". In the same way that many legal entities strive to avoid even the appearance of a conflict of interest, you should avoid any investment behavior that has even the appearance of performance chasing.
Write on the chalkboard 100 times:

I will not chase performance.
I will not chase performance.
I will not chase performance.

And so on.

Performance chasing is probably the most damaging thing that an investor can do to reduce his or her investment performance over time. Don't do it.
A fool and his money are good for business.
JBTX
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Re: Slightly overweighted on international - time to adjust AA?

Post by JBTX »

abuss368 wrote: Sat Jan 15, 2022 7:59 pm
JBTX wrote: Sat Jan 15, 2022 7:28 pm
abuss368 wrote: Sat Jan 15, 2022 7:25 pm
JBTX wrote: Sat Jan 15, 2022 7:20 pm
abuss368 wrote: Sat Jan 15, 2022 7:18 pm

Good point. Perhaps there is a reason for that however.

Tony
Of course there is a reason. But the question becomes is the reason correct, and will that reason persist over time.
Valid point and one of the reasons I like the old saying “No one knows nuttin”!

What is your US an International stock and bond allocation?

Tony
Basically about 60/40 us/international.
40% international stock and 40% international bond?
Tony
Portfolio : 60% equities. Other 40%: bonds, TIPS, ibonds good silver REITS
Equities: 60% US , 40% international.
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